A practical way to support employees' families.

What employers can fund

A qualifying employer program may exclude up to $2,500 per employee annually from the employee's income. The exclusion is not a separate allowance for every child. Employer contributions also count toward each receiving account's $5,000 annual limit alongside ordinary family contributions during the growth period.

Both limits are subject to inflation adjustments after 2027. Source: IRS Notice 2025-68.

Separate the employee exclusion from the employer deduction.

The employee income exclusion is a specific program benefit. It does not, by itself, establish the employer's business-expense deduction.

Employer deductibility depends on the applicable tax rules, the business's circumstances, and how the benefit is structured and documented. Ask a tax adviser to confirm the treatment before describing contributions as deductible.

A qualifying section 128 program must meet written-plan and other statutory requirements. The income exclusion is not a blanket exemption from employment taxes. Benefits counsel should review eligibility, nondiscrimination, reporting, and administration.

Make the benefit understandable.

A contribution toward a child's long-term savings can complement a family-focused benefits package. Explain what the employer offers, who is eligible, and which actions the employee needs to take.

Avoid promising investment returns or guaranteed retention results. Evaluate contribution formulas and eligibility with counsel, and distinguish employer support from the separate federal deposit.

Build a clear administrative process.

Coordinate account verification, employee authorization, payroll or benefits administration, contribution limits, and recordkeeping. Confirm how other employer benefits and family contributions affect the relevant limits.

Communications should explain investment risk and the withdrawal restrictions during the growth period, which ends before the calendar year the child turns 18. Employees should receive official resources, not promises of tax-free access.