Latest news with #MAGAAccount
Yahoo
22-05-2025
- Business
- Yahoo
Savings accounts for babies in One, Big Beautiful Bill really are beautiful, experts say
Start early and take advantage of compound growth is the mantra of almost every financial adviser. That's why the new savings account for children included in the One, Big, Beautiful Bill , with a one-time deposit of $1,000 from the federal government, is truly beautiful to the investment community. The "proposal reflects a growing consensus: investing early in every child's future is a smart and necessary step," said Marisa Calderon, president and chief executive of Prosperity Now, a national nonprofit organization focused on expanding economic opportunity for low-income families and communities in the United States. Originally called the Money Account for Growth and Advancement, or MAGA Account, but changed last night by the House to the Trump Account, would create a federally funded savings account with a $1,000 deposit for children born between Jan. 1, 2025 and Jan. 1, 2029. Parents also could contribute up to $5,000 annually to the tax-deferred account to be invested in a diversified fund that tracks a U.S.-stock index. Qualified withdrawals, including for education expenses or credentials, a down payment on a first home or as capital to start a small business, are taxed at the long-term capital-gains rate. There are no income requirements and everyone is eligible, as long as the child is a U.S. citizen, and both parents have Social Security numbers. Sen. Ted Cruz (R-Texas), who proposed the savings account initiative, has said for those who don't own any stocks or bonds, these accounts will give everyone a stake. By saving early, the invested money has time to grow. "Research shows that lasting change comes from scale," Calderon said. "Deposits must grow over time and be available when they matter most, such as paying for college, starting a business, or buying a first home." After 25 years, $1,000 invested in the S&P 500 would grow to approximately $10,835, for example. The average stock market return is about 10% per yearfor nearly the last century, as measured by the S&P 500 index. The Trump account isn't a new idea, but it's a new move for the federal government if it passes into law. The enormous tax bill still needs approval from the Senate, which may demand changes before passage. About seven years ago, Sen. Cory Booker (D-New Jersey) proposed a savings account dubbed 'baby bonds,' with $1,000 seed money for newborns based on family income, with potentially larger initial deposits for lower-income families. The proposal never gained bipartisan traction and died. However, the intent of these savings accounts are the same: "Giving children a financial foundation from birth," Calderon said. Some states like Connecticut and Iowa have baby bond programs, which are publicly funded child trust accounts and all have different rules and amounts. Connecticut, for example, only offers its program to babies whose birth was covered by the state Medicaid program and invests $3,200 once at the start. Iowa funds its account with $500 initially and then annually up to 18 years. Some cities have also launched programs that offer seed money to kids in kindergarten to be used for college. HOPE Child Savings Account Program in Atlanta, Georgia launched in May 2022 and San Francisco's Kindergarten to College (K2C) program kicked off in 2011 and sent its first students to college in 2023. A child with a college savings account, no matter the dollar amount in it, is 6 times more likely to go to college, according to a Center for Social Development study. The children are also 4 times more likely to graduate. That's because psychological benefits are associated with having a college fund. Just having the fund establishes a belief that college is possible and an expectation that the child is going to college. "We've long supported this kind of forward-looking policy because we know what works, and because a child's financial future shouldn't be determined by the zip code they're born into," Calderon said. "We are encouraged to see lawmakers taking steps to reflect the principles of baby bonds." Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@ and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday. This article originally appeared on USA TODAY: Trump Accounts seen as a 'beautiful' thing for kids in giant tax bill Sign in to access your portfolio
USA Today
22-05-2025
- Business
- USA Today
Savings accounts for babies in One, Big Beautiful Bill really are beautiful, experts say
Savings accounts for babies in One, Big Beautiful Bill really are beautiful, experts say Show Caption Hide Caption Trump's tax-cut bill passes key committee, moves to House President Donald Trump's sweeping tax-cut bill passed a key committee and will move to a House vote. Start early and take advantage of compound growth is the mantra of almost every financial adviser. That's why the new savings account for children included in the One, Big, Beautiful Bill , with a one-time deposit of $1,000 from the federal government, is truly beautiful to the investment community. The "proposal reflects a growing consensus: investing early in every child's future is a smart and necessary step," said Marisa Calderon, president and chief executive of Prosperity Now, a national nonprofit organization focused on expanding economic opportunity for low-income families and communities in the United States. How would the new savings accounts work? Originally called the Money Account for Growth and Advancement, or MAGA Account, but changed last night by the House to the Trump Account, would create a federally funded savings account with a $1,000 deposit for children born between Jan. 1, 2025 and Jan. 1, 2029. Parents also could contribute up to $5,000 annually to the tax-deferred account to be invested in a diversified fund that tracks a U.S.-stock index. Qualified withdrawals, including for education expenses or credentials, a down payment on a first home or as capital to start a small business, are taxed at the long-term capital-gains rate. There are no income requirements and everyone is eligible, as long as the child is a U.S. citizen, and both parents have Social Security numbers. Sen. Ted Cruz (R-Texas), who proposed the savings account initiative, has said for those who don't own any stocks or bonds, these accounts will give everyone a stake. How does this help Americans? By saving early, the invested money has time to grow. "Research shows that lasting change comes from scale," Calderon said. "Deposits must grow over time and be available when they matter most, such as paying for college, starting a business, or buying a first home." After 25 years, $1,000 invested in the S&P 500 would grow to approximately $10,835, for example. The average stock market return is about 10% per yearfor nearly the last century, as measured by the S&P 500 index. Are these types of savings accounts new? The Trump account isn't a new idea, but it's a new move for the federal government if it passes into law. The enormous tax bill still needs approval from the Senate, which may demand changes before passage. About seven years ago, Sen. Cory Booker (D-New Jersey) proposed a savings account dubbed 'baby bonds,' with $1,000 seed money for newborns based on family income, with potentially larger initial deposits for lower-income families. The proposal never gained bipartisan traction and died. However, the intent of these savings accounts are the same: "Giving children a financial foundation from birth," Calderon said. Some states like Connecticut and Iowa have baby bond programs, which are publicly funded child trust accounts and all have different rules and amounts. Connecticut, for example, only offers its program to babies whose birth was covered by the state Medicaid program and invests $3,200 once at the start. Iowa funds its account with $500 initially and then annually up to 18 years. Some cities have also launched programs that offer seed money to kids in kindergarten to be used for college. HOPE Child Savings Account Program in Atlanta, Georgia launched in May 2022 and San Francisco's Kindergarten to College (K2C) program kicked off in 2011 and sent its first students to college in 2023. A child with a college savings account, no matter the dollar amount in it, is 6 times more likely to go to college, according to a Center for Social Development study. The children are also 4 times more likely to graduate. That's because psychological benefits are associated with having a college fund. Just having the fund establishes a belief that college is possible and an expectation that the child is going to college. "We've long supported this kind of forward-looking policy because we know what works, and because a child's financial future shouldn't be determined by the zip code they're born into," Calderon said. "We are encouraged to see lawmakers taking steps to reflect the principles of baby bonds." Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@ and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
Irish Times
20-05-2025
- Business
- Irish Times
Could a MAGA-inspired baby fund work in Ireland?
Republican firebrand Ted Cruz isn't the most obvious inspiration for Irish policymakers, but his new MAGA Account proposal echoes the Programme for Government's vague plan to introduce managed savings accounts for newborns. MAGA, in this case, stands for 'Money Account for Growth and Advancement,' not the usual red-hatted version. Under Cruz's plan, every American newborn would get a $1,000 stock market account, with friends and family allowed to contribute up to $5,000 annually. From age 18, the money could be used for college, a first home or to start a business. The idea was welcomed by Trump supporter and hedge fund billionaire Bill Ackman, who has long proposed giving each newborn $6,750 to invest in index funds until retirement – enough to grow into $1 million by age 65 at annual equity returns of 8 per cent. Adjusted for 3 per cent annual inflation, that figure shrinks to around $161,000, but the principle still holds. As Cruz puts it, Americans would 'experience the miracle of compound interest'. READ MORE There's bipartisan momentum behind the general concept. Vanguard, JPMorgan and BlackRock's Larry Fink all support some version of early investment accounts, as do some Democrats. Some US research finds that so-called baby bonds could reduce the racial wealth gap. As Stocktake argued in January, the real lesson is this: don't just save more – save sooner, and smarter. Choose low-cost index funds, and let time do the heavy lifting.
Forbes
16-05-2025
- Business
- Forbes
What's Better? The MAGA Account Vs. The Child IRA?
getty The MAGA Account could simply be a case of overcomplicating a straightforward solution. The news hit this week with a flurry of articles. The House and Senate are considering what is being called a 'MAGA Account,' short for the 'Money Account for Growth and Advancement.' The proposal has taxpayers funding $1,000 to every baby born in the years 2025 through 2028. In addition, it would allow parents, family, or friends to add contributions up to $5,000 per year until the child turns eight. If this sounds familiar, it's because it is. The concept of government-subsidized 'baby bonds' was first proposed decades ago. While never gaining traction at the federal level, several states, including the District of Columbia, have adopted programs that provide government-funded accounts for newborn babies. Unlike the MAGA Account, however, these state-run programs are generally available only to families with incomes below certain thresholds. The MAGA Account also echoes the Child IRA as featured in two recent books. These vehicles, when used strategically, allow children to retire as multi-millionaires. The only catch is the child has to work—not so easy for babies, but very possible for teenagers. These are just like regular IRAs—both traditional pre-tax and after-tax Roth IRAs—but for minor children. While the full House and Senate have yet to vote, you can still compare the MAGA Account with the Child IRA to see which might be better for your child or grandchild. Unlike IRAs and 529 plans, the MAGA Account has taxpayers funding $1,000 for every child. There's a caveat here. It's considered a pilot program, so it applies only to children born between 2025 and 2028. Children would not be able to access their funds until their 18th birthday and must distribute the entire account by their 31st birthday. Assuming an 8% annual rate of return, the initial $1,000 would grow to approximately $5,000 by age 18 and to just under $11,000 by age 31. All distributions of earnings would be taxed as ordinary income. That doesn't sound like it would make much of a dent in things. That's why the next aspect of the MAGA Account is critical. Each account can receive $5,000 per year (from virtually any source) until age 8. That's potentially another $40,000 added to the account. Applying the same growth assumptions above, these fully charged MAGA Accounts would grow to about $128,000 by age 18 and nearly $350,000 by age 31. That's certainly enough to pay for college or buy a new home (but not both). Missing from the current discussion is what happens if the MAGA Account is used for retirement? If it could be left untouched and earn 8% per year until age 70, the fund would grow to more than $7 million. Keep in mind that the nominal average long-term market return is 10.5%. If you recalculate the returns based on this number, and assuming you could let the account accumulate, you'd have $181,000 at age 18, $662,000 at age 31, and more than $32 million at age 70. Of course, this analysis assumes the legislation passes as is currently proposed. As detailed in the books From Cradle to Retirement: The Child IRA and The Parent's Guide to Turning Your Teen Into a Millionaire, the Child IRA is immediately available to all, as long as the child has earned income. (Yes, it is possible for newborn babies to earn income.) Ideally, these IRAs would be established as ROTH IRAs so they can both grow and be distributed tax-free. Setting aside the various ways children could earn income, you can quickly see what the numbers look like under three different scenarios. In the first case, the original Child IRA scenario, the child earns enough income from newborn through age 18 to contribute $1,000 a year (for a total contribution of $19,000). By age 70, this grows to $2.3 million (an 8% annual return) or $9.7 million (a 10.5% annual return). The second scenario represents the easiest and most likely Child IRA opportunity. In this case, the child begins work as a teenager (age 13) and earns enough every year (through age 18) to contribute the maximum amount possible ($7,000). Lest you think this is too ambitious, remember that it represents total earnings, not just the earnings of a single job. Thanks to the internet, creative teenagers can run multiple side hustles, thus creating several sources of income. By age 70, the total contribution of $42,000 would grow to $2.8 million (assuming an 8% annual return) or $9.8 million (assuming a 10.5% annual return). Finally, if you consider the most ambitious scenario, you'll see the real power of compounding. Assume the child contributes the maximum through age 18. That's a total of $133,000 in contributions. At age 70, this grows to $15.9 million (with an 8% annual return) or $67.9 million (with a 10.5% annual return). For comparison sake with the MAGA Account, at age 18, this Child IRA would be worth $290,000 (8%) or $378,000 (10.5%). At age 31, this Child IRA would be worth $790,000 (8%) or $1.4 million (10.5%). Why Ben Franklin? 'Ben, the favorite Founding Father and First American, taught us about truly long-term investing with his 200-year gifts to the cities of Boston and Philadelphia for funding skill development of generations to come,' says J. M. (Jack) Towarnicky, Of Counsel for Koehler Fitzgerald, LLC in Powell, Ohio. Towarnicky believes Washington has 'again missed the boat on how to prompt long-term savings.' He points out, 'Like past Democratic proposals such as Baby Bonds and 401kids, MAGA adds to our $1 to $2 trillion annual deficits and our $36+ trillion in national debt. Young Americans don't need additions to debts they must someday pay!' It turns out, according to Towarnicky, there's a simple, well-worn path for achieving the objective of the MAGA Account without increasing the national debt. 'There is a better option,' he says. 'I call it the Ben Franklin Child Roth IRA. It isn't complicated. Just apply the Spousal IRA rules, which have been in the tax code since 1977, so that they apply to minor, dependent children under the age of 18, but limit those rules to a Roth IRA. Anyone can contribute—a parent, grandparent, sibling, or friend. You don't have to be a relative. Even a non-governmental agency (NGO) or the federal, state, or local government could contribute!' Mimicking the Spousal IRA would appear to be a seamless way to create a Child IRA without strings attached. 'It has been part of the tax code for over 45 years for a spouse without wages,' says Towarnicky. 'Most minor dependent children don't have wages either.' The real selling point of his idea, which deficit hawks will find most attractive, is his limitation of using only the Roth IRA. He says, 'Why Roth? No impact on federal deficit or national debt, because favorable tax treatment on investment earnings doesn't apply until the owner reaches age 59½. In addition, it favors low- and middle-income households.' Are you interested in learning more about the Child IRA? Go to for the latest news, information, and resources on the subject. Including the latest information on the MAGA Account should it become law.
