In a vote early Thursday, House members approved President Donald Trump‘s “big, beautiful” tax bill, including a new savings account for children with a one-time deposit of $1,000 from the federal government.
Under the proposal, “Trump Accounts” — previously known as “Money Accounts for Growth and Advancement” or “MAGA Accounts” — can later be used for education expenses or credentials, the down payment on a first home or as capital to start a small business.
The final version of the bill that House Republicans passed Thursday could still face pushback in the Senate.
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If the bill passes as drafted, parents will be able to contribute up to $5,000 a year and the balance will be invested in a diversified fund that tracks a U.S.-stock index.
Sen. Ted Cruz, R-Texas, who spearheaded the effort, said the accounts give children “the miracle of the compound growth, the ability to accumulate wealth, which is transformational.”
529 college savings plan, the Trump Account has a tax incentive to getting a jump start on saving. Earnings grow tax-deferred, and qualified withdrawals are taxed at the long-term capital-gains rate.
“This isn’t all that different from the tax treatment you would get from a typical brokerage account,” said Sam Taube, NerdWallet’s lead investing writer.
Other similar options already exist. Custodial brokerage accounts — often called a UTMA (Uniform Transfers to Minors Act) or UGMA (Uniform Gift to Minors Act) account — also allow parents to transfer bank deposits, stocks, bonds and mutual funds to minors. But in that case, investment income, including dividends and interest, could be subject to a “kiddie tax” charged to the parents at their rate.
With 529 accounts, alternatively, earnings grow on a tax-advantaged basis, and when a child withdraws the money, it is tax-free if the funds are used for qualified education expenses, such as tuition, fees, books, and room and board.
apprenticeship programs and student loan payments.
Plus, 529 accounts have much higher contribution limits. This year, individuals can gift up to $19,000, or up to $38,000 if you’re married and file taxes jointly, per child.
