Small Businesses can now contribute to Trump Accounts

According to Congress.gov Traditional IRAs are typically tax-advantaged accounts for individuals who have income from work to save for retirement. Trump Accounts differ from other traditional IRAs in that they have special rules, described below, that apply prior to the start of the year in which a beneficiary reaches the age of 18 (i.e., during the account’s growth period).

Trump Account rules for Employer Contributions

Contributions to Trump Accounts are allowed from several sources. Anyone can contribute to a child’s Trump Account, although individual contributions during the growth period are not tax-deductible for either the contributor or the beneficiary. Employers can contribute up to $2,500 (adjusted for inflation after 2027) tax-free to the Trump Accounts of employees or their dependents (amount is per employee, per year). Tax-free contributions are also allowed from state or local governments and from 501(c)(3) tax-exempt organizations, provided the state, locality, or organization contributes an equal amount to the account of each child in a qualified group of either (1) all children, (2) all children in a certain geographic area, or (3) all children born in one or more calendar years.

The law established a new tax exclusion for employer contributions into the Trump Accounts of their employees or the dependents of their employees. Qualifying employer contributions will not be considered the taxable income of the employee, and the employer can deduct such expenses as part of the compensation of their employees, as they can with contributions to other accounts such as employer-sponsored retirement accounts. Employers can offer this benefit as part of a cafeteria plan.

The value of such contributions is limited to $2,500 per employee, per year (adjusted for inflation starting in 2027). Unlike other tax-advantaged contributions, qualifying employer contributions count toward the $5,000 limit (adjusted for inflation after 2027) on annual contributions into a given Trump Account. The amount contributed will be taxed upon its withdrawal from the account, just as other tax-exempt Trump Account contributions are.

Let’s Talk

If you are starting a business or already own a business and are unsure how to contribute, give us a call. Something to note: If you are an S-Corp Owner paying yourself W-2 wages, “The Employee” can be you.

If you want to learn more, call today. We are always here to answer any questions you may have.

Best regards,
Sport & Wheat CPA, PA