Don't Mess With Taxes

Photo by Bermix Studio on Unsplash

The single Republican bill the White House wants passed as soon as possible to implement its tax and immigration policies is definitely big, running in its latest iteration to 1,116 pages.

And it has at least one provision, starting on page 806, that some parents might find beautiful.

Under a tax provision in the officially named One, Big, Beautiful Bill (OBBB), Uncle Sam would give parents $1,000 when a baby born between 2025 and 2028 joins their families. Parents of children age eight or younger also could open a special savings account for those slightly older youngsters.

Providing parents cash is not a new political idea. Several years ago, Democrats, led by New Jersey Sen. Cory Booker, introduced a similar federally funded childhood savings account dubbed baby bonds.

This time, the proposal comes from Republican Sen. Ted Cruz of Texas, whose original version was known as the Invest America Act bill.

Cruz’s proposal was rolled into the OBBB and renamed MAGA for Money Account for Growth and Advancement. Once again, Capitol Hill proves that it starts with the acronym it wants and then works backwards for name that fits it.

New account for young children: The proposal this time has two components. Let’s start with the one for families who already have young children.

Starting Jan. 1, 2026, parents of any child younger than age eight would be able to open a MAGA account for their child at a bank or similar financial institution.

The child for which the MAGA account is opened must be a U.S. citizen, and at least one parent must provide their Social Security number in order to establish the account.

Parents, relatives, and others each could contribute $5,000 annually to the MAGA account, with the funds growing tax-deferred until the youngster turns 18. That contribution maximum will be indexed for inflation.

Account access on 18th birthday: Age 18 is the MAGA account’s first milestone. The money cannot be distributed before that birthday. Also, on that date, no more money can be put into the account.

The 18th birthday also is when up to 50 percent of the MAGA account money could be withdrawn to pay higher education expenses, first-time home purchases costs, and entrepreneurial expenditures.

The next birthday to watch is 25. When the young account beneficiaries reach that age, will be allowed to withdraw up to the full balance of the account. These funds, however, also must be used for educational, homeownership, and business expenses.

Finally, when the account owner turns 30, the remaining amount is available to use for any purpose desired.

Tax deferred, not tax free: Note, too, the earnings are tax-deferred, like traditional IRA and 401(k) savings. No tax is due while the MAGA account grows, but distributions, even those used to pay qualified expenses, would be taxed.

The good news here is that the tax will be at the usually lower capital gains tax rates. If any MAGA account money is used to pay costs that aren’t qualified, they might be taxed at the account owner’s ordinary federal income tax rate.

An if the MAGA account money is used for a non-qualified expense before the account beneficiary turns 30, an additional 10 percent tax will apply.

At age 31, the account will be terminated and the funds disbursed. And taxed.

Newborns MAGA account pilot program: In addition to the accounts available for youngsters who haven’t celebrated their eighth birthday, the OBBB also calls for a MAGA pilot program for U.S. children born between Jan. 1, 2025, and Dec. 31, 2028.

These babies, or more precisely their families, would receive $1,000 from the U.S. Treasury for use in their MAGA account.

The federal contribution is just seed money for the babies in the pilot’s 2025 through 2028 range. As with the accounts for children younger than age eight, friends, family, and even the parents’ employers each could contribute as much as $5,000 every year into the account.

Since the $1,000 MAGA account pilot money is from taxpayer dollars, the program would have stricter eligibility requirements.

Both, not just one parent, would have to provide valid Social Security numbers.

Only parents or guardians could open a MAGA account for the eligible newborn.

And, per the OBBB’s explanation document, “If the Secretary of the Treasury determines that an eligible individual does not have an account opened for them by the first tax return where the child is claimed as a qualifying child, the Secretary shall establish an account on the child’s behalf, taking into account, to the extent possible, the parents preferred custodian and investment fund.”

The account selected by Uncle Sam will be, per the bill, a single diversified fund that tracks a broad U.S.-stock index, keeping investment decisions simple.

In cases where Treasury establishes the newborns’ savings plans, the parents will be allowed to opt out of the accounts.

Long legislative road: Sunday night, GOP leaders were able to make enough changes to get their members who were balking at the OBBB’s cost to move it out of the House Budget Committee.

But there is still a long legislative road the OBBB must maneuver. It’s expected to be tweaked even more before going to the full House for a vote. If/when it clears that chamber, the Senate will get its shot at the bill.

Republicans hope to have the bill to the White House by July 4. We’ll see.

You also might find these OBBB items of interest:

• SALT could stall GOP’s comprehensive tax bill
• GOP offers new tax breaks for 2026 election year filers
• 2nd W&M tax proposal includes popular, controversial, and costly provisions
• Green energy tax credits, including solar options, on the GOP tax bill chopping block

Correction: The original birthdate range for the newborn MAGA account was wrong due to a typographical error.
Other minor changes were made during the bill's final House debate. The errors have been corrected.

Advertisements

🌟 Search Amazon Baby Products 🌟
The text link above is an affiliate ad. If you click through and then buy a product, I receive a commission.