A new Treasury proposal would let working parents route up to $2.5K a year into their child's Trump Account directly from their paycheck, before taxes. That's the same treatment health savings accounts and flexible spending accounts already get.
The rule isn't final yet, but a public hearing is set for Oct. 15, and employers are already watching.
How the paycheck deduction actually works
Trump Accounts are tax-deferred investment accounts for anyone under 18 with a Social Security number. Congress set a $5K annual contribution limit, with employers allowed to chip in up to $2,500 of that tax-free.
What the new proposed rule adds is letting employees make those employer-side contributions through a payroll deduction, which means the money never shows up as taxable income.
The $2,500 pretax cap is shared between what the employer contributes and what the employee deducts. It also counts toward the $5K total annual limit per child. If a parent has more than one child, the cap stays at $2,500 per employee, not per kid.
The catch is that none of this works unless your employer sets up a written plan. Companies don't have to contribute their own money, they just have to update their benefits structure. But if they don't act, workers have nothing to elect.
What this is actually worth in taxes
For a household in the 24% federal tax bracket, a $2,500 pretax contribution saves roughly $500 in federal income taxes, according to one financial adviser. That's not life-changing, but it's money for doing something you might already be doing.
One CFP put it plainly: "The deduction is real but modest, and it doesn't change what you own or how it comes out." The account itself still converts to a traditional IRA when the child turns 18, and withdrawals are taxed as ordinary income.
Financial planners see a longer game here. Once the account becomes an IRA at 18, the child can convert it to a Roth IRA. Someone in their late teens or early 20s is likely in the lowest tax bracket of their life, making it a cheap time to pay that conversion tax.
If the parent used pretax dollars going in and the child pays conversion tax at a low rate coming out, that's what one adviser called a discount Roth conversion.
What's already open and what's coming
Trump Accounts went live in July, with roughly 7 million accounts holding nearly $1.5B in savings as of late last month. Children born between Jan. 1, 2025, and Dec. 31, 2028, can receive a one-time $1K federal seed contribution.
Parents open accounts by filing IRS Form 4547 online or on paper, after which Treasury sends activation instructions. More than 50 companies have already pledged contributions, including Chime, State Street, Vanguard, and Visa.
The White House Council of Economic Advisers projects balances could reach as high as $303.8K by age 18 if maximum contributions are made every year, assuming average US stock market returns.
The pretax payroll piece likely won't be in place until 2027 at the earliest, according to one benefits consultant. The proposed rules clarify a lot of what employers were waiting for, but comment periods and finalization take time.
Parents who want this benefit should ask their HR department whether their company plans to set up a Trump Account contribution program, because without that plan in writing, the tax break doesn't exist.
