From Contribution Limits to Trump Accounts: Navigating the OBBBA's Retirement Reforms

One Big Beautiful Bill Act (OBBBA) has introduced changes to the federal tax treatment of some retirement plan contributions. This article provides a concise overview of the OBBBA's major provisions as well as guidance for compliance and maximizing benefits.

Enhancements to SIMPLE IRAs and SIMPLE 401(k) Plans

The OBBBA introduces several enhancements to SIMPLE IRAs and SIMPLE 401(k) plans, aimed at increasing contribution limits and providing greater flexibility:

• Increased Contribution Limits: The legislation raises the contribution limits for SIMPLE IRAs and SIMPLE 401(k) plans, including higher elective deferrals and catch-up contributions, particularly for individuals aged 60–63. Employers may also make additional nonelective contributions beyond the standard 2% nonelective or 3% matching contributions.
• Rollovers: Rollovers from 403(b) plans to SIMPLE IRAs are now permitted, consistent with prior legislative changes.

Impact on Defined Contribution and Qualified Plans

While the OBBBA does not directly alter the basic tax treatment of contributions to 401(k), 403(b), or 457(b) plans, it interacts with ongoing IRS guidance and amendment cycles, including those required by the SECURE and SECURE 2.0 Acts:

• Plan Qualification and Amendment Cycles: Plans must be amended to reflect statutory changes, with deadlines generally set for December 31, 2026, for SECURE 2.0 changes.

Introduction of Trump Accounts

One of the most notable features of the OBBBA is the introduction of "Trump accounts," a new form of individual retirement account (IRA) designed specifically for minors under the age of 18. These accounts are subject to the rules of traditional IRAs under IRC § 408(a), with several significant modifications:

• Creation and Structure: Trump accounts can be established by the Secretary of the Treasury or by individuals for the benefit of minors. Investment options are limited to certain low-fee index funds, and the annual contribution limit is set at $5,000 per beneficiary under age 18, indexed for inflation after 2027.
• Tax Treatment of Contributions: Contributions made before the beneficiary turns 18 are not deductible. However, employer contributions up to $2,500 per employee (indexed for inflation after 2027) are excludable from the employee’s gross income. Qualified general contributions from government or charitable entities are also excludable from gross income.
• Distributions and Taxation: Distributions from Trump accounts are generally prohibited before the beneficiary turns 18, except for rollovers or upon death. Earnings grow tax-deferred, and distributions are taxed under rules similar to IRC § 72, with certain contributions excluded from basis.
• Reporting and Compliance: Trustees are required to report contributions, distributions, and balances to the IRS and beneficiaries. Penalties apply for improper claims or reporting failures.

Other Notable Provisions under Trump Accounts

• Employer Contributions to Trump Accounts: Employers may establish programs to contribute to Trump accounts for employees or their dependents, subject to annual limits and requirements similar to dependent care assistance programs.
• Tax Credits and Exclusions: Certain contributions to Trump accounts, such as qualified general contributions, are excludable from the beneficiary’s gross income. Employer contributions are also excludable up to the annual limit.
• Coordination with Other Plans: Contributions to Trump accounts do not count against IRA contribution limits for other plans before the beneficiary turns 18. Rollovers and transfers are subject to specific anti-abuse rules.

Conclusion

The OBBBA introduces changes to the tax-advantaged retirement savings landscape, most notably through the creation of Trump accounts for minors, increased contribution limits and flexibility for SIMPLE IRAs and SIMPLE 401(k) plans, and new tax exclusions for certain contributions. These changes must be coordinated with existing IRC provisions and ongoing IRS guidance. Plan sponsors and individuals should review these new rules carefully to ensure compliance and to maximize available tax benefits.  Most OBBA retirement plan provisions apply to taxable years beginning after December 31, 2025.

If you require further analysis or have specific questions regarding the implementation or impact of these provisions, please do not hesitate to reach out to our Employee Benefit Plan Services Group. We are here to help you navigate these changes and ensure that your retirement plans continue to provide valuable benefits to your employees.

About the Author

Kimbarley A. Williams, CPA, is a principal at Boyer & Ritter LLC and is chair of the firm’s Employee Benefit Plan Services Group. Kim has over 20 years of experience providing audit, accounting and tax services to employee benefit plans, business trade associations, charitable organizations, community foundations, and closely held businesses. Contact Kimbarley at 717-761-7210 or kwilliams@cpabr.com.