IRS Proposes Rules for Trump Account Investment Options: Considerations for Employers

On August 21, 2026, the Internal Revenue Service (“IRS”) and the Department of the Treasury (“Treasury”) published a notice of proposed rulemaking providing guidance on the types of investments that may be held in a Trump Account during the account “growth period” (i.e., the period ending December 31 of the calendar year in which the beneficiary reaches age 17). The proposed regulations, issued under Section 530A of the Internal Revenue Code (the “Code”), generally limit Trump Account investments during the growth period to low-cost, passively managed index mutual funds and exchange-traded funds (“ETFs”) that track broad-based US equity indices. In addition, the rules establish investment-selection, monitoring and correction requirements for Trump Account trustees.

While taxpayers and trustees may rely on the proposed regulations immediately if they follow them in their entirety and in a consistent manner, the proposed regulations generally apply to taxable years beginning on or after January 1, 2026, except that trustee-specific requirements apply to taxable years beginning on or after the date final regulations are published.

Employers considering implementing Trump Account Contribution Programs (“TACPs”) should be aware of these investment restrictions, despite the majority of the requirements in the proposed regulations being applicable primarily to Trump Account trustees. For more on recent agency guidance regarding TACPs, see our earlier Legal Updates, DOL Guidance Clarifies ERISA Status of Trump Accounts and IRS Issues Proposed Regulations on Employer Contributions to Trump Accounts and Nondiscrimination Rules for Dependent Care Assistance Programs. For a discussion of employer design considerations, see Practical Considerations for Employers Implementing Trump Account Contributions as a Retention and Recruitment Tool.

Eligible Investments Under the Proposed Regulations

Under the proposed regulations, an “eligible investment” for a Trump Account is a mutual fund or ETF that satisfies all of the following requirements:

• Tracks a qualified index,
• Does not use leverage,
• Has total annual fees and expenses of no more than 0.1% of net asset value, and
• Meets such other criteria as the Secretary of the Treasury determines appropriate.

Actively managed funds are not eligible investments, and an investment fund, including a fund-of-funds, that seeks to replicate the returns of multiple indices is not an eligible investment. However, a fund-of-funds that tracks a single qualified index and meets all other requirements is not precluded. ETFs and mutual funds must be domestic corporations registered under the Investment Company Act of 1940.

Requirement 1: Qualified Index Requirements

A “qualified index” is the S&P 500 or any other index that:

• Is composed of equity investments in primarily US companies (the proposed regulations include a safe harbor for an index primarily (90%) comprised of US companies, based on their weightings);
• Has regulated futures contracts traded on a qualified board or exchange;
• Is not industry-specific or sector-specific;
• Is composed entirely of stocks and similar ownership interests (no debt, derivatives, or non-ownership assets); and
• Has a publicly available index methodology.

Examples of qualifying indices cited in the preamble, in addition to the S&P 500, include the CRSP U.S. Total Market Index and the Nasdaq Composite. Market-capitalization-based indices are expressly permitted. Money market funds do not track the returns of a qualified index and thus are not eligible investments.

Requirement 2: Leverage Prohibition

A fund is generally treated as using leverage if borrowings, derivatives or similar instruments materially increase the risk of loss. The proposed regulations provide exceptions for certain ordinary-course practices that do not materially increase risk, including short-term borrowing for liquidity, certain derivatives used to obtain index exposure and securities lending.

Requirement 3: Fees and Expenses Cap

The 0.1% cap on annual fees and expenses applies to the sum of (i) all annual fees charged directly to fund holders, including annual, periodic, transactional, purchase, redemption, and sales load fees regardless of form, and (ii) total annual operating expenses as disclosed in the fund’s prospectus. Trustee or custodial fees for maintaining the Trump Account, as well as transaction fees imposed by an intermediary rather than the fund, are not counted toward the cap. For funds with multiple share classes, the cap applies separately to each class.

Requirement 4: Other Criteria (Including ESG Funds Exclusion)

The fund must meet such other criteria as the Secretary of the Treasury determines appropriate. For example, the proposed regulations provide that any fund corresponding to, or marketed as tracking, an ESG index is not an eligible investment. An “ESG index” is any index that has, or is marketed as having, a focus on environmental, social, or governance factors. Treasury explained that ESG indices “limit exposure to companies in a way that makes them similar to sector-specific funds” (which are also prohibited), and stated that the economic impact of this exclusion is minimal.

Trustee Obligations and Monitoring

The proposed regulations impose substantial procedural obligations on Trump Account trustees:

• Investment menus must be limited to eligible investments.
• Trustees must establish and disclose a default eligible investment for each account and state how dividends and distributions will be reinvested as part of the default selection.
• Contributions and reinvested proceeds will be applied to the default investment unless the beneficiary or responsible party directs otherwise.
• The trustee’s written governing instrument must address procedures for fund selection, temporary cash holdings, and error correction. Cash generally may be held only for the period reasonably necessary to complete a permitted transaction.
• A trustee must make an initial eligibility determination when first offering a fund, followed by periodic re-determinations at least every 12 months. Trustees may rely on the fund’s prospectus and public documents required by federal securities laws.

Consequences of Noncompliance

The consequences of holding an ineligible investment depend principally on whether the investment was ineligible when acquired or became ineligible after acquisition.

• Ineligible when acquired: If an investment was ineligible when acquired, the account ceases to be a Trump Account (and an IRA, as discussed further below) as of the first day it holds the ineligible investment, with no remediation window. A limited exception applies to certain trustee administrative errors, which may be corrected within 30 days from the first day the portion was not invested in an eligible fund.
• Ineligible after acquisition: If a fund was eligible when acquired but later ceases to qualify, the account retains its status if the trustee sells or disposes of the investment, reinvests the proceeds within the applicable 30-day correction period and the trustee discloses the error and reinvestment to the beneficiaries. If the trustee fails to do so, the account loses its Trump Account and IRA status.

The date on which the fund is treated as ceasing to be an eligible investment depends on the trustee’s monitoring procedures. If the trustee has not complied with the periodic monitoring requirements, that date is the first day the fund fails to satisfy the eligible investment requirements. For a compliant trustee, however, that date is the earlier of the trustee’s next periodic determination or the date the trustee acquires actual knowledge that the fund no longer qualifies.

If an account ceases to be a Trump Account, it also loses its status as an IRA and the account is treated as having made a taxable distribution to the account beneficiary.

Treasury and the IRS have requested comments on potential additional correction relief, including whether a trustee should be permitted to restore earnings lost as a result of its own administrative error, without the replaced earnings counting toward the annual contribution limit. They are also considering whether Trump Account corrections should be incorporated into the IRA correction framework authorized under Section 305(c) of the SECURE 2.0 Act.

Practical Takeaways For Employers

• Understand the investment landscape before communicating benefits. Although the investment rules are directed primarily at trustees and account beneficiaries, they are relevant to employers as well. Employer TACP contributions, which may not exceed $2,500 per employee per year (counting toward the overall $5,000 annual contribution cap), flow into Trump Accounts that are subject to these restrictions. Employers should understand how contributed funds are invested so they can communicate the value of the TACP benefit to employees.
• No employer investment-selection responsibility. Unlike qualified retirement plans, where employers bear fiduciary responsibility for investment menu selection and monitoring under ERISA, the proposed regulations place investment-selection and monitoring obligations squarely on the Trump Account trustee. This is consistent with the DOL’s separate confirmation that TACPs generally are not ERISA plans (as discussed in our July Legal Update).
• Employers cannot manage investment compliance through trustee selection. As described in our prior Legal Update, a TACP cannot limit contributions to Trump Accounts held by a particular trustee or trustees. As a result, employers will be sending contributions to whatever trustee holds each dependent’s account and cannot diligence or negotiate with a single trustee as they might for a health savings account program. Employers implementing TACPs should therefore focus on their own operational readiness, such as verifying that any contributions through a TACP are being made to valid Trump Accounts.
• Consider submitting comments. Treasury and the IRS have requested comments on several issues that could affect the design and administration of Trump Accounts and TACPs, such as stock contributions and trustee fees. Employers with strong views on these design questions should consider submitting comments by the October 20, 2026 deadline.