IRS's Trump account proposal turns on a 10-basis-point cap

The Internal Revenue Service and Treasury Department on Thursday proposed regulations that, during the growth period, would confine Trump account assets to low-cost U.S. equity index funds, Financial Planning reported. Under the draft, an eligible investment is a mutual fund or exchange-traded fund that tracks an index of primarily U.S. companies such as the S&P 500, uses no leverage, and keeps annual fees and expenses at or below 0.1%.

Trump accounts are the tax-deferred children's accounts created by last year's One Big Beautiful Bill Act, now rebranded the Working Families Tax Cuts. Eligible children were born from Jan. 1, 2025, through Dec. 31, 2028. Each gets a $1,000 government seed, and parents and employers can add more. The accounts went live July 4. The IRS proposed employer-contribution rules earlier this month; the investment menu comes next.

The growth period opens when the beneficiary's initial account is established and runs through Dec. 31 of the year the child turns 17. Only eligible investments may be held in that window. Afterward, the restrictions fall away, splitting the money into two phases: a childhood constrained to a narrow set of index products and an adulthood in which the account can be repositioned like any ordinary tax-deferred vehicle.

Because the accounts resemble IRAs, the contribution is a starting point. Contribution rules stay as they are. The proposal defines the only products that can compound tax-deferred through the growth period, making eligibility the binding constraint for the account's childhood phase.

The fee ceiling is the provision that will do the real work. The screen is strict: any fund carrying an embedded advice fee or a sub-advisory layer will struggle to fit underneath. The likely default is a plain index fund or ETF. If the beneficiary or a parent does not choose an eligible investment, the trustee picks one, and that default must also clear the line. The advice has to live around the account, not inside it.

The proposal also details how a trustee verifies that holdings qualify and how the eligibility test is applied. That puts the compliance burden on the institution running the account. Advisors face the same practical screen the IRS uses: Does the fund track a U.S. equity index? Does it use leverage? Does it clear 0.1%?

The regulations would generally apply to tax years beginning on or after Jan. 1, 2026, which puts the current tax year in scope if the rules are finalized as written. The IRS is taking comments through Oct. 20, 2026. The proposal also reflects comments filed in response to Notice 2025-68, issued last December. IRS CEO Frank Bisignano said the goal is to steer eligible participants toward low-fee funds that grow tax-deferred for a lifetime.

Between the employer-contribution rules from earlier this month and this investment proposal, the regulatory framework is now in place. What remains is the comment process and the final wording of the eligibility test. The fee cap and the index definition are the clauses most likely to draw pushback from fund sponsors, because both work against any product with a built-in cost layer.

Advisors have been mapping the 530A planning problem since the law passed, as this publication has argued, and the proposed regulations sharpen that work. As index returns commoditize, tax alpha is the battleground, and the Trump account is a clean test case: the funding decision, the growth-period timeline, the fee constraint, and the post-age-17 repositioning all sit in the advisor's hands. The account is a contribution-timing and repositioning problem, and the rules now tell planners exactly which constraints to model.

The fee test is a defensible line for a government-seeded account, and it gives the industry a clear benchmark for an eligible holding. The comment window stays open until Oct. 20, 2026. The first contribution decisions under the proposed framework are happening now. Advisors who wait for final rules to understand the fee math will be late.