There is an initiative in the U.S. that went live this year called the Trump Accounts. It is a tax-advantaged investment account program designed for U.S. children under 18 and aims to give young Americans early exposure to broad market stock investments. Although Trump put his name to it, private sector collaborators Brad Gerstner and Michael Dell came up with the original idea. It is a brilliant way of making every citizen feel part of the success of the country by giving them “skin in the game”. Just imagine your getting $1000 at birth in the S&P500 and watching it compound over the next 18 years. It will make you pay attention, get you to become investment literate and create a nice little nest egg. The key features of the initiative are as follows:
- Government Seed Money: The U.S. Department of the Treasury provides a $1,000 one-time pilot contribution for U.S. citizen children born between January 1, 2025, and December 31, 2028.
- Private & Corporate Support: Philanthropists, state/local governments, and private employers can also contribute. Employers can contribute up to $2,500 annually tax-excluded per employee.
- Annual Contribution Limits: Parents, family, and friends can contribute up to $5,000 per year per child using after-tax dollars. Government and charitable contributions do not count against this cap.
- Strict Investment Guidelines: To encourage long-term compound growth, cash holdings are restricted. Funds must be invested in low-cost mutual funds or ETFs tracking broad-market U.S. stock indices (such as the S&P 500) with capped expense ratios (up to 0.10%).
Money is held in the child’s name with a parent/guardian as custodian and cannot be withdrawn for any reason before the child turns 18. At age 18 the account transitions to function like a traditional RA.
In South Africa we will probably never see something like this. The only way to get something similar going in SA is to do it yourself. As a parent/grandparent you have to take that R500+ you were going to spend on your child/grandchild and buy some S&P500 ETFs for them in their name, and as we have mentioned before, let compounding do the rest.