On Tuesday, Dell Technologies Inc. CEO Michael Dell and his wife Susan announced a US$6.25 billion donation to the “Trump reportsfor approximately 25 million American children. investment and savings initiative It was first introduced this summer in President Donald Trump's One Big Beautiful bill and is scheduled to be introduced next year. Here, the Financial Post breaks down what Trump accounts are, how they work, and whether such an initiative could work in Canada.
What is a Trump account?
The Trump account is a type of tax-advantaged investment account that is designed for starting long-term projects.
starting at birth, giving them the impetus to grow their investments over time and through compounding. It includes a proposed government down payment of $1,000.
Parents or guardians set up and manage the account until the child turns 18.
managing director of tax and estate planning at Canadian Imperial Bank of Commerce (CIBC) Private Wealth Management, said it appears to be a multi-purpose account. The beneficiary could potentially use the funds to pay for their education, a down payment on a first home or as capital to start a business, he said. They can also keep the investment for retirement.
These accounts will operate like traditional U.S. IRAs, except for the initial government contribution and restrictions on the types of investments allowed in the account. These include tax-deferred growth, annual contribution limits, and early withdrawal penalties. Financial experts still have questions about how details like withdrawal taxes will work, as well as concerns about whether it will only benefit wealthier families.
“This is unlike anything we've ever seen before because not only is it a gift that can be passed on to children, but there are pretty strict rules when it comes to investing in (these accounts),” said Pierre-Benoit Gauthier, vice president of investment strategy at IG Wealth Management Inc.
How does this work?
Contributions to Trump accounts could begin on July 4, 2026. Parents and others can contribute up to $5,000 per year to these accounts, and employers can contribute up to $2,500, up to the $5,000 cap. Donations from foundations, state and local governments, and other tax-exempt organizations may be broad and may not count toward the annual contribution limit.
The U.S. Treasury and Internal Revenue Service (IRS) have stated that the annual contribution limit is
and will be adjusted starting in 2027.
There are a couple of conditions. The money must be invested in diversified, low-cost index funds that track U.S. companies such as the S&P 500, and beneficiaries cannot withdraw funds until they are 18 years old.
Gauthier said the big advantage of Trump's account is timing.
“When you start (investing) at birth, compounding does the heavy lifting,” he said. “The sooner you start, the more the math works in your favor.”
The US Council of Economic Advisers estimates that, assuming an average US stock market return scenario, the Trump account balance for a child born in 2026 would be $303,800 by age 18 and $1,091,900 by age 28 if maximum contributions are made.
Assuming no contributions are made beyond the initial $1,000, the board projects the balance to be $5,800 by age 18 and $18,100 by age 28.
How are withdrawals taxed?
When the beneficiary turns 18, the account is treated as a traditional individual retirement account (IRA) and is subject to typical IRA rules.
That means the account owner will pay an additional 10 percent tax on early withdrawals before age 59½ unless an exception applies (such as for higher education expenses or the purchase of a first home), the White House said.
“The idea is that (Trump's account) grows tax deferred, and then when the kids take the money out, sometime after age 18, the contributions become tax-free,” Golombek said.
While parental contributions will not be taxed upon withdrawal, earnings from those contributions will be, Golombek said. But it can get complicated because federal start-up money and contributions from charities and employers are considered income and therefore also subject to taxes upon withdrawal, he added.
He said there would likely need to be some tracking of donations and where they came from.
Who is eligible?
Any child in the US under 18 with a Social Security number will be eligible for a Trump account, which must be created and managed by their parent or guardian until the child turns 18.
The Dells pledged $250 in gifts to children under age 10 who were born before Jan. 1, 2025 and live in areas where the median income is below $150,000. The US government also plans to provide a one-time contribution of $1,000 to start-up accounts for children born between January 1, 2025 and December 31, 2028. It is unclear where the money for federal contributions will come from.
Gauthier said that while the accounts are said to benefit all newborn American children, he and other observers are concerned that they will be used most often by higher-income families who have the financial ability to make the maximum $5,000 contribution each year.
“These accounts can help low-income families build a small nest egg for their children, which is positive.”
Will this idea work in Canada?
While Golombek called Trump's reports “innovative,” he said the options we already have in Canada could simply be changed.
“I don’t think the program is coming to Canada anytime soon, but if it does come to Canada, I think we already have existing programs that could be modified to allow parents to save for their children, outside of education, through an RESP.”
Golombek said that from Canada's perspective, Trump's report would be most comparable to
(TFSA), in which contributions are made with after-tax dollars and grow tax-free (though with a TFSA, withdrawals are also tax-free).
“If the (Canadian) government wants to do it, we already have a system in place,” Golombek said. “We would just need to change the TFSA contribution age and also allow other people to contribute on behalf of that person.”
Gauthier compared Trump's accounts to a mixture of TFSA and
registered education savings plan
(RESP) because the latter is a tax-sheltered account opened by someone on behalf of their child into which the government also deposits money.
With an RESP, contributions are also made in after-tax dollars and are not taxed upon withdrawal, but as with Trump's account, any investment earnings accumulated within the plan are considered taxable income upon withdrawal, Golombek said.
However, the government matches 20 percent of RESP contributions annually (up to a maximum of $500), which could make it a more attractive option than the lump sum contribution offered in Trump's account, Gauthier said. The key difference is that the RESP is designed specifically to fund higher education (with tax implications if the funds are used for other purposes), while the Trump account has broader uses.
One
Trump's words come from Joe Canavan, an executive at venture capital firm Canavan Capital and former chairman and interim CEO of the Children's Fund. He proposed a government-funded program that would provide Canadian children with $10,000 in a federal savings account, with annual birthday contributions of $1,000 for ages 2 to 6 and $500 for ages 7 to 17. Parents and other family members can also make matching contributions, he said, and beneficiaries can access the account with 25 percent growth as they age.
Investments in this account could also involve Canadian companies trading money in the Canadian investment ecosystem, he told the Financial Post. His recommendation was that the program could be financed by gradually lowering the age of eligibility for Old Age Security (OAS) from 65 to 67, as well as through tax revenue.
“If you want to bring hope and opportunity to one generation, empower an entire country, this is how to do it,” Canavan said.
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