Trump’s Tax Cut Bill passes major committees and moves to the House
President Donald Trump’s sweeping tax bill passes major committees and moves to the House vote.
Getting started early and taking advantage of compound growth is a mantra for almost every financial advisor.
That’s why children’s new savings accounts included in the law called “one big, beautiful bill” with a $1,000 deposit from the federal government are truly beautiful for the investment community.
“The proposal reflects an increasing consensus. Investing early in the future for all children is a wise and necessary step,” said Marisa Calderon, president and CEO of a national nonprofit organization focused on expanding economic opportunities for low-income families and communities in the United States.
How will your new savings account work?
Originally called a Money Account or MAGA Account for Growth and Progress, it was changed from home to a Trump Account on Wednesday night, but will create a federally funded savings account with a $1,000 deposit for children born between January 1, 2025 and January 1, 2029.
Parents can also contribute up to $5,000 a year to tax addiction accounts to be invested in a variety of funds tracking US inventory indexes. Qualified withdrawals including education expenses, qualifications, qualifications, down payments in your first home, or down payments as capital to start a small business are taxed at long-term capital rates.
As long as the child is a US citizen and both parents have a Social Security number, there is no income requirement and everyone is eligible.
Sen. Ted Cruz (R-Texas), who proposed the savings account initiative, said those accounts would fund everyone for those who do not own stocks or bonds.
How does this help Americans?
By saving early, the money invested has time to grow.
“Studies show that lasting change comes from scale,” Calderon said. “Deposits should grow over time and be available at the most important times, such as paying for college, starting a business, buying a first home.”
Twenty-five years later, the $1,000 invested in the S&P 500 will grow to, say, about $10,835. As measured by the S&P 500 index, the average stock market revenue is around 10% per year for nearly the last century.
Are these types of savings accounts new?
Trump’s account is not a new idea, but if it is passed to the law, it is a new move for the federal government. Huge tax bills require approval from the Senate and may require changes before they pass.
About seven years ago, Sen. Cory Booker (D-New Jersey) proposed a savings account called “Baby Bonds.” This included $1,000 in seed money for newborns based on family income, with potentially large initial deposits for low-income families. The proposal never gained bipartisan traction and died.
However, these savings accounts have the same intention. “Give your children a financial foundation from birth,” Calderon said.
Some states like Connecticut and Iowa are publicly funded children’s trust accounts, all with different rules and amounts. Connecticut, for example, covers its program with the state’s Medicaid program, offering it only to babies who initially invest $3,200 each time. Iowa initially funds the account for $500, then up to 18 years each year.
Some cities have also launched programs that provide seed money to kindergarten children used by universities. The Hope Children’s Savings Account Program, held in Atlanta, Georgia, was launched in May 2022, with the San Francisco Kindergarten to University (K2C) program beginning in 2011, sending the first students to the university in 2023.
Children with university savings accounts are six times more likely to go to university, regardless of dollar amount, according to the Center for Social Development Research. Children are also four times more likely to graduate.
This is because psychological benefits are related to having a university fund. Establishing the belief that college is possible simply by having a fund and the expectation that your child will go to college.
“We have long supported this kind of future-looking policy, because we know what works, and because our children’s financial future should not be determined by the zip code they were born with,” Calderon said. “We are encouraged to see lawmakers take steps to reflect the principles of baby bonding.”
Medora Lee is a money, market and personal finance reporter for USA Today. mjlee@usatoday.com and Subscribe to our free daily money newsletter Personal finance tips and business news every Monday to Friday.
