INSIGHT

IRS Proposes Rules for Trump Accounts: What Families, Employers, and California Taxpayers Need to Know 

Edmond Zhou • March 12, 2026

Services: Tax

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On March 6, 2026, the IRS released two notices of proposed rulemaking establishing the operational framework for Trump Accounts — a new children’s savings vehicle created by the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025. If you have children, employ a workforce, or advise businesses on compensation strategy, these rules have direct implications for your tax planning — and if you’re in California, there’s an important wrinkle you need to understand right now. 

Here’s what you need to know. 

What Is a Trump Account? 

A Trump Account is a new type of traditional individual retirement account (IRA) established under IRC §530A for the exclusive benefit of a child — the account beneficiary — not the parent or guardian. Think of it as a head-start investment account that operates like a traditional IRA during the child’s early years, then transitions fully into a standard IRA framework when the beneficiary turns 18. 

Key features include: 

• Eligible individuals: Any child under age 18 who has been issued a valid Social Security number 
• Growth period: From account establishment until the child turns 18 
• Investment requirements: Funds must be invested in a broad index of primarily U.S. equities with regulated futures contracts, with no leverage and annual fees and expenses no greater than 0.1% 
• No distributions permitted during the growth period, with limited exceptions 
• Annual contribution limit: $5,000 (indexed for inflation), from family members, employers, governments, and nonprofits combined 

After the growth period ends, the standard rules governing traditional IRAs under IRC §408 generally apply. 

The $1,000 Pilot Program Contribution 

Separately, IRC §6434 establishes a one-time $1,000 pilot program contribution from the federal government into a Trump Account for eligible children. This is a meaningful benefit worth acting on quickly. 

Who Qualifies 

To receive the $1,000 pilot program contribution, a child must: 

• Be a U.S. citizen born between January 1, 2025, and December 31, 2028 
• Have a valid Social Security number issued before the election is made 
• Be a qualifying child of the individual making the election under IRC §152(c) 
• Have no prior pilot program election processed by the IRS 

The pilot program contribution does not count toward the $5,000 annual contribution limit, and it cannot be reduced or offset by other tax debts. 

Timing Matters 

The IRS’s proposed rules are specifically designed to allow elections to be made as quickly as possible — even within weeks of a child’s birth. Based on historical equity market returns, the IRS’s own analysis shows that $1,000 invested at birth grows to a median of $6,180 by age 18, compared to just $1,160 if invested at age 17. Earlier is better. 

How to Open an Account and Make the Election 

The IRS has created Form 4547, Trump Account Election(s), to handle both the initial Trump Account election and the pilot program contribution election. Elections can also be made through an electronic application or webpage the IRS will make available. 

Who Can Make the Election 

If you’re making the pilot program election (i.e., claiming the $1,000 contribution), you automatically serve as the authorized individual to open the Trump Account at the same time — streamlining the process into a single filing. 

If no pilot program election is being made (for example, for a child born before 2025), the authorized individual follows this priority order: 

1. Legal guardian 

2. Parent 

3. Adult sibling 

4. Grandparent 

Only the first election processed by the IRS for a given child will result in an account being opened. Once processed, no further elections are allowed for that child. 

Responsible Party 

The individual who makes the election becomes the responsible party for the account while the child lacks legal capacity. This person has authority to direct investments among eligible options, authorize rollovers, and designate a successor responsible party. 

Employer Contributions: A New Workforce Benefit to Consider 

Under IRC §128, employers may contribute up to $2,500 annually (indexed for inflation after 2027) to a Trump Account for an employee or an employee’s dependent. These contributions are excluded from the employee’s federal gross income, provided they are made through a qualifying Trump Account contribution program under §128(c). 

For employers exploring competitive compensation and benefits strategies, this is worth evaluating. However — and this is critical for California-based businesses — the federal tax treatment does not automatically apply at the state level. 

California Taxpayers: A Critical Disconnect 

California conforms to the Internal Revenue Code as it existed on January 1, 2025. Because IRC §530A was enacted on July 4, 2025, as part of the OBBBA, California does not conform to the Trump Account provisions. The California Franchise Tax Board (FTB) has taken the position that Trump Accounts are not recognized as tax-deferred retirement accounts for state purposes. 

What This Means in Practice 

For California taxpayers, the divergence from federal treatment is significant: 

• Investment earnings are taxed annually in California — there is no state-level tax deferral during the growth period 
• The account functions more like a UTMA (Uniform Transfers to Minors Act) account for California purposes, with earnings taxable each year to the child 
• Employer contributions under IRC §128 are taxable income in California — there is no state exclusion 
• Contributions from governments or tax-exempt organizations under IRC §139J are also not excluded from California income 
• Kiddie tax rules may apply to unearned income attributed to the child 
• Families will need to track separate federal and California basis throughout the growth period 

The One California Silver Lining 

The $1,000 pilot program contribution under IRC §6434 is the exception. Because the federal mechanism treats this contribution as a payment against the child’s federal tax liability rather than income, the FTB has indicated it would not treat the pilot contribution as California taxable income. That said, all other contributions and earnings remain subject to annual California taxation. 

Planning Ahead for the Federal-State Mismatch 

If you’re a California resident or a California employer considering Trump Account contributions as a workforce benefit, this federal-state disconnect creates real compliance and planning complexity: 

• Annual earnings must be reported and taxed at the California level each year 
• Payroll and HR teams need to understand the California income inclusion for employer contributions
• High-income families subject to California’s top marginal rates may see their effective state tax drag meaningfully reduce the projected growth benefit 
• At age 18, when the account converts to a traditional IRA, California basis calculations will differ from the federal basis — impacting future distribution planning 

What to Do Now 

These proposed rules are effective for taxable years beginning on or after January 1, 2026 — meaning the planning window is open today. Here’s how to approach the opportunity: 

• Families with newborns (2025–2028): Consider acting quickly to file Form 4547 and claim the $1,000 pilot program contribution. The earlier the election, the greater the potential growth. 
• Families with children under 18: Evaluate whether opening a Trump Account makes sense given your federal and state tax situation, contribution capacity, and long-term goals. 
• California residents: Work with your tax advisor to understand the annual earnings reporting requirements and model the after-tax growth under both federal and California rules before making contribution decisions. 
• Employers: Analyze whether a Trump Account contribution program under IRC §128 is a viable employee benefit — and model the California payroll tax implications before implementation. 

How BPM Can Help 

Trump Accounts introduce planning opportunities — but also real complexity, particularly for California families and businesses navigating the federal-state mismatch. BPM’s tax professionals work with individuals, families, and employers to analyze how new legislation applies to your specific situation and structure your approach thoughtfully. 

Whether you’re evaluating the $1,000 pilot program, considering employer contribution programs, or trying to understand how annual California taxation will affect your projected returns, BPM can provide the analysis and guidance you need to make informed decisions. 

This alert is intended for informational purposes only and does not constitute legal or tax advice. The IRS rules described above are in proposed form and subject to change. California tax treatment is based on currently available FTB guidance, which may be updated. Consult a qualified tax advisor regarding your specific circumstances.