Treasury has withdrawn the claim that an ESG index is sector specific, and then excluded ESG funds from Trump accounts under a different power

Notice 2025-68 told the industry that an index built on environmental, social and governance criteria counted as a sector-specific index, and was therefore off the menu for a Trump account. A commenter objected that the label would muddle the meaning of the term everywhere else it is used. Treasury and the Internal Revenue Service agreed and dropped it. Then they excluded the funds anyway, under a different sentence of the statute.

The proposed regulations were filed for public inspection at 8.45 on Thursday morning and publish on Friday. They run to 53 pages and they answer one question: what a Trump account may hold while the beneficiary is still a child.

The statute, and the gap in it

Section 530A came in with section 70204 of Public Law 119-21, signed on 4 July 2025. A Trump account is a traditional individual retirement account, never a Roth, opened for an eligible individual. During the growth period, which starts when the first account is established and ends on 31 December of the year the beneficiary turns 17, none of the money may sit in anything other than an eligible investment.

The statute defines that term four ways. A mutual fund or exchange traded fund, tracking the returns of a qualified index, using no leverage, charging annual fees and expenses of no more than 0.1 percent. It then adds a fourth limb at section 530A(b)(3)(A)(iv), which lets the Secretary specify further criteria. That fourth limb is where the ESG exclusion now lives.

Proposed section 1.530A-3(e)(3) would no longer call an ESG index sector specific. It would instead say plainly that a fund tracking an ESG index is not an eligible investment, on the reasoning that such funds limit exposure to companies in a way that makes them similar to sector-specific funds. The definition is broad. An ESG index, the rule says, includes any index that has, or is marketed as having, a focus on environmental, social or governance factors.

Actively managed funds fail on the first limb rather than the fourth, and the document says so in one line: investing Trump account money in a fund that does not track an index would be directly contrary to the statute. A fund of funds is allowed, but only if it tracks a single index. Anything replicating two or more is out.

The 0.1 percent test is not the expense ratio

Managers asked for transactional charges to be left out, so that only the expense ratio counted. Treasury refused, and gave a reason that has nothing to do with tidiness. A rule that excluded some fees by their form would simply push funds toward that form. So sales charges, loads and redemption fees all count, and a sales load is part of a mutual fund's annual fees even when the money ends up with an intermediary.

Custodial and account charges are treated the other way. Those are trustee fees, they sit outside the 0.1 percent limit, and the document ends with a request for comments on what to do about them, including the possibility of barring trustees from charging anything at all.

The trustee carries the compliance

The rules turn the statutory drafting requirement into an operating one. A trustee must offer only funds it has determined to be eligible, must set a default eligible investment for every account, and must re-check each fund at least once every 12 months, which is the safe harbour. Money market funds stay barred during the growth period.

When a fund stops qualifying, the trustee has 30 days to sell and reinvest, and must tell the beneficiary afterwards rather than before. An administrative error carries the same 30 days. Miss it and the penalty is not a fee. The account stops being a Trump account and stops being an individual retirement account.

The rules are proposed to apply to taxable years beginning on or after 1 January 2026, except the trustee procedures, which would apply from the date any final rule publishes. Trustees and taxpayers may rely on the proposal in the meantime, provided they follow all of it and follow it consistently. Comments close 60 days after publication.