By: Sonya Dolguina, CPA, CPA (IL)
Cross-Border Tax Consultant and Special Contributor to Clarity Cross Border
Introduction
For Americans planning a move to Canada, or US citizens who already live north of the border, it’s important to understand the cross-border tax implications of new financial planning opportunities. The introduction of Trump Accounts has generated significant interest among families looking for ways to save and invest for their children’s future, but for individuals with ties to both the United States and Canada, the analysis is more complex than simply determining whether an account can be opened.
You may be wondering whether a Trump Account is an appropriate savings vehicle for your children, how contributions and investment growth will be treated from a Canadian tax perspective, or whether owning one could create unexpected compliance obligations. Because Canada and the US have different approaches to taxing investment accounts, strategies that are beneficial from a purely US perspective may have unintended consequences for Canadian residents.
This article explores the key cross-border tax considerations surrounding Trump Accounts and provides guidance for US citizens living in Canada, Americans considering a move to Canada, and families navigating the complexities of planning across both tax systems. By understanding the potential Canadian tax implications before opening or contributing to these accounts, families can make more informed decisions and avoid costly surprises in the future.
What is a Trump Account?
Trump Accounts are structured as a special type of traditional IRA, governed by Section 530A of the Internal Revenue Code. They are intended for U.S. citizen minors with a Social Security Number (SSN), with after-tax contributions made on behalf of a child. The child is considered the beneficiary or eligible individual in the context of the account.
There is no specific income requirement to open these accounts, and the account is intended to grow on a tax-deferred basis for US federal income tax purposes. This is a benefit of the Trump Account over other types of traditional IRAs, which generally require earned income in order to make a contribution.
Annual contributions are capped at $5,000 USD per year, which can come from parents, other relatives, employers, or even certain charities. For children born between January 1st, 2025, and December 31st, 2028, the U.S. government will contribute $1,000 USD to the account. No contributions are needed to get this $1,000 USD. Other than very limited circumstances, no withdrawals are permitted while the child is a minor.
Once the child turns 18, the account is intended to convert into a regular traditional IRA, governed by Section 408 of the Code. The amount of contributions to the account would generally form the “basis” of the account and can be withdrawn free of U.S. tax.
Any withdrawn growth from the traditional IRA would be taxable to the beneficiary, along with an additional 10% early withdrawal penalty if withdrawn earlier than the age of 59½. The 10% early withdrawal penalty may be waived for withdrawals used for qualified expenses, such as qualifying education expenses or toward the purchase of a first home, up to certain limits.
At age 18 onwards, beneficiaries of the account may also convert the account to a Roth IRA, although as this article will cover, Roth conversions should be avoided by Canadian tax residents.
Canadian Tax Treatment
At the time of writing, neither the Canada Revenue Agency nor the Department of Finance has published guidance regarding the Canadian tax treatment of Trump Accounts. Accordingly, the discussion below represents a technical interpretation of existing Canadian tax legislation rather than an official CRA position.
From the outset, there are clearly two stages to this account.
First, is the period in which the child is a minor, known as the growth period. Then, after the child reaches 18, (specifically, as of January 1 of the calendar year in which the account beneficiary attains age 18), the account transitions into a regular traditional IRA.
Stage 1: The Growth Period
The Trump Account clearly is a tax advantaged account in the eyes of the IRS, but that does not necessarily mean Canada will acknowledge the tax-free treatment of the investment earnings and growth.
The Trump Account is a type of traditional IRA, and generally speaking, traditional IRAs are considered tax-deferred accounts for Canadian tax purposes. However, the reason that traditional IRAs are tax deferred in the eyes of the CRA, is because they are usually considered foreign retirement arrangements.
Per Section 6803 of the Canadian Income Tax Regulations, only IRAs established under 408(a), 408(b), or 408(h), of the Code, are foreign retirement arrangements. Traditional IRAs under the newly established 530A – the Trump Accounts, appear unlikely to satisfy the current definition. The distinction is significant because Canada’s tax deferral for traditional IRAs arises from their status as a foreign retirement arrangement (not simply because they are called an IRA).
This suggests the account would be treated as a regular investment account during the growth period rather than as a tax-deferred foreign retirement arrangement. If that interpretation holds, income earned before age 18 would be taxed under ordinary Canadian rules.
However, just because the account may be considered taxable during the growth period, does not necessarily mean it should be discounted for Canadian residents.
Income Within The Trump Account
The rules surrounding the Trump Account limit the types of investments it can hold.
Generally speaking, it has to invest in a mutual fund or ETF that tracks a broad-based US equity index, such as the S&P 500 index. Because these investments historically derive a significant portion of their return from capital appreciation, with just a modest dividend yield of under 2%. This income characterization is relevant for Canadian tax purposes.
Dividends are taxed when earned, while capital appreciation isn’t taxed until a disposition were to occur. A disposition could be an actual sale, or a deemed disposition, which will be covered later in this article.
The crucial point surrounding these Trump Accounts is that they legally belong to the child, who is the beneficiary of the account.
The parent, who typically would be the one to open the account, is known as the Account Opener, but isn’t technically the owner. This is unlike RESP and 529 Plans, which are generally owned by the adult who opens them for the child, oftentimes the parent. For Canadian tax purposes, the taxation of income generally follows the beneficial owner.
So if there are capital gains and dividends earned during the growth period within the Trump Account, who pays the Canadian tax? As with many tax questions, the answer is – it depends.
Canadian Attribution Rules
If a Canadian resident parent or grandparent transfers or “gifts” funds into a related minor’s taxable investment account, income generated from those funds may be attributed back to the transferor for tax purposes. These are known as attribution rules, and are governed under Section 74.1(2) of the Income Tax Act.
However, capital gains are specifically excluded from these attribution rules for minors. And because the majority of the income from the S&P 500, the index that Trump Accounts would most likely to invest in, generate capital gains, those capital gains would be taxable in the hands of the minor child.
The key distinction here is taxable versus taxed. Just because income is taxable to the child, doesn’t necessarily mean there will be a tax liability. Consider two key matters:
- Every Canadian resident gets the basic personal tax credit ($16,452 in 2026), meaning the first $16,452 of taxable income in 2026 is not subject to any federal taxes. Each province also has a basic personal tax credit which functions similarly.
- Only 50% of capital gains are taxable due to the 50% inclusion rate.
Putting these two rules together, a minor child with no other income other than growth from this Trump Account could recognize over $30,000 in capital gains every year without paying any federal taxes. They may also be able to avoid provincial taxes all together, depending on the province’s basic personal tax credit threshold.
Therefore, it may just be the dividends earned in the Trump Account that are attributed back to a Canadian resident contributor parent, assuming the parent contributed the funds toward the account.
Depending on the source of the contributions, families may be able to reduce the application of Canada’s attribution rules on dividends by using US-resident relatives, such as grandparents, as contributors. If the contribution does not come from the Canadian-resident parent, the Canadian attribution rules should not apply, which can improve the account’s tax efficiency.
Stage 2: Age 18 – Transition to Traditional IRA
After age 18, the account should convert to a Section 408 traditional IRA, which is much more likely to qualify as a Canadian foreign retirement arrangement (FRA) and receive tax-deferred treatment. This means that capital gains and dividends within the account would likely no longer be subject to Canadian taxation, and instead, the ordinary rules surrounding traditional IRAs would apply.
The Canadian tax rules surrounding foreign retirement arrangements indicate:
“An amount received by an individual resident in Canada out of or under an FRA is included in the individual’s income under clause 56(1)(a)(i)(C.1), but only to the extent that the amount would be subject to tax in the country in which the FRA is established if the individual were a resident of that country”.
Because income from a traditional IRA that qualifies as an FRA would only be taxable in the U.S. upon withdrawal, the same taxation rules would apply in Canada.
As with normal traditional IRA withdrawals made by a Canadian tax resident, the U.S. generally has primary taxing rights, and foreign tax credits are generally available to alleviate from double taxation.
Summary
| Stage 1 | Stage 2 | |
| Account type | Trump Account | Traditional IRA |
| Canadian treatment | Likely taxable investment account | Likely Foreign Retirement Arrangement |
| Annual investment income | Potentially taxable in Canada | Likely tax-deferred |
| Attribution rules | Potentially applicable | Generally not relevant |
| Primary planning issue | Annual taxation of income | Future withdrawals |
Transition from Trump Account to Regular Traditional IRA
One of the largest unanswered questions is: What happens when the account transitions from the growth period (Stage 1) to a regular traditional IRA (Stage 2)?
If the transition occurs during the Canadian residency period, what effectively is occurring is the beneficiary is transferring a taxable investment account into a foreign retirement arrangement. That in itself, might be considered a deemed disposition under Canadian tax rules.
A deemed disposition occurs under Canadian tax rules when you are deemed to have sold an asset at fair market value, despite there being no actual sale. A similar concept applies when a taxpayer moves an investment from a taxable brokerage account into a registered account, such as an RRSP or TFSA.
One possible interpretation is that the difference between the fair market value of the account at the time it converts to a regular traditional IRA, and the adjusted cost basis of the account, triggers a capital gain. 50% of capital gains would be taxable in the hands of the account beneficiary.
Example: Potential Capital Gain Upon Transition to a Traditional IRA
| Assumption | Amount |
| Annual Contribution | $5,000 USD |
| Contribution Period | 18 years |
| Total Contributions (Cost Basis) | $90,000 USD |
| Assumed annual investment return | 10% |
| Estimated account value at age 18 | $250,000 USD |
| Unrealized capital gain | $160,000 USD |
| Taxable capital gain (50% inclusion rate) | $80,000 USD |
*Amounts shown for illustration only. Canadian tax calculations require conversion of each contribution and disposition amount to Canadian dollars using the applicable exchange rates.
If the account has appreciated substantially in value during the course of the beneficiary’s growth period, a potential capital gain could be costly.
That may mean that purposely triggering capital gains on an annual basis, and repurchasing the same investments in order to increase the underlying investments’ cost basis, could be the key to reducing the risk of a big tax hit at age 18. This is known as crystallizing capital gains.
As previously covered, the minor may be able to pay zero tax on capital gains annually, provided their total taxable income is below the basic personal tax credit amount.
Other Considerations with the Trump Account
Moving to Canada
Canada’s deemed acquisition rules generally reset the adjusted cost base of most taxable property upon immigration. Establishing Canadian tax residency with an existing Trump Account for your minor child may provide them with a “step-up in cost basis”. Under the presumption that Canada will treat the account as a taxable investment account, as with all other taxable investment accounts (non-qualified accounts), the cost basis of the investments will equal the fair market value of the account as of the date you establish tax residency.
This means that any future capital gains from the disposition of investments within the Trump Account, for Canadian tax purposes, would be limited to growth that accrued after Canadian tax residency was established.
For example: Mary and Tom move to Canada on January 1, 2029, with their 5 year old daughter, Sarah. Sarah’s Trump Account holds an S&P 500 Index ETF, which is worth $20,000 USD on January 1, 2029. The USD/CAD exchange rate on this date is 1.35, meaning that Sarah’s cost basis for Canadian tax purposes is $27,000 CAD.
Leaving Canada
When moving out of Canada, there is a concept of departure tax, or deemed disposition, for certain assets held at the time Canadian tax residency is ceased. This means that for tax purposes, you are treated as having sold impacted assets at their fair market value as of the date you cease Canadian tax residency.
Generally speaking, regular traditional IRAs, 401(k) accounts, RRSPs, and other Canadian registered accounts, are exempt from deemed disposition. However, if Canada will treat the Trump Account as a taxable brokerage account, the underlying assets may be treated as sold as of the date the minor ceases Canadian tax residency.
Any growth, after converting to CAD, would therefore be considered a capital gain. 50% of capital gains are taxable for Canadian tax purposes.
Certain temporary residents may qualify for an exception from the deemed disposition rule. To the extent that the investments were already owned at the time Canadian tax residency was originally established, and the taxpayer was a resident of Canada for less than 60 months out of the last 10 years up to moving out of the country, those assets may be excluded from the deemed disposition.
Conversion to Roth IRA
One of the touted benefits of the Trump Account is the ability to convert the traditional IRA to a Roth IRA, after the growth period is over. This is known as a Roth conversion. Roth IRAs are excellent accounts, as they may allow for future withdrawals to be completely tax-free, provided both the 5 year holding period test, and age 59 1/2 test are met.
New Canadian residents with existing Roth accounts can benefit from the tax-free treatment in Canada too, provided they file a valid election with the Canadian Competent Authority, and not make any Roth contributions or conversions during their Canadian tax residency period.
Therefore, existing Canadian tax residents with a traditional IRA, such as one stemming from a Trump Account, should generally avoid Roth conversions during Canadian residency. This will result in the account being a taxable investment account from a Canadian tax perspective, losing the great tax efficiency that a traditional IRA made available.
Form T1135
To the extent that a Canadian tax resident has interest in Specified Foreign Property with a cumulative cost basis in excess of $100,000 at any point in the tax year, Form T1135 must be filed with the CRA. Specified Foreign Property can include foreign brokerage accounts, foreign bank accounts, and stock of non-Canadian corporations held in Canadian taxable brokerage accounts. While regular traditional IRAs are generally not reportable on the Form T1135, the Trump Account may not fall under the exemption during the growth period. T1135 reporting is generally required by the individual who has ownership interest in the underlying property, which in this case, may be the minor child, to the extent they meet the $100,000 CAD threshold.
Conclusion
For cross-border families, determining whether a Trump Account is appropriate involves much more than understanding the tax rules. Factors such as current residency, future mobility between Canada and the United States, expected investment returns, contribution sources, and long-term retirement planning all influence whether the account is likely to achieve its intended objectives. A comprehensive cross-border financial plan can help evaluate these issues before significant contributions are made.
References
https://www.congress.gov/crs-product/R48910
https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/technical-releases/26-02