GOP Is Proposing Two New Tax-Advantaged Savings Accounts–Including One With a $1,000 Bonus for Babies

Two Republican proposals could change the way consumers save money, with both providing tax incentives to encourage people to save more. The main opposition to these proposals is that they would increase federal spending and help wealthy people more than those with low or moderate incomes.

The current GOP budget bill that is being ironed out includes a proposed “money account for growth and advancement” (MAGA) account. The Treasury Department would contribute a $1,000 deposit for every baby born between 2025 and 2028 whose parents have Social Security numbers. Friends, family, employers, governments, and nonprofit groups could contribute up to $5,000 a year, and the money in the account could be invested in stocks. 

The money could be withdrawn after the child reaches age 18 and, if used for qualified expenses, any earnings would get a tax break.  Qualified expenses include education, starting a business, or buying a home. 

The tax benefits are still being discussed. A committee summary of the bill says disbursements for qualified expenses would be taxed as long-term capital gains, a rate that is lower than ordinary income tax rates. The full House plan says the funds would not be subject to taxation at all. Either way, withdrawals for non-qualified expenses would be subject to ordinary income tax. 

Parents could also open an account for children under the age of eight, but only newborns would get the $1,000 deposit from the federal government.

The beneficiary could withdraw half of the money between the ages of 18 and 25 for qualified expenses, with the other half becoming available for these expenses at age 25. The money could be used for any purpose after the account holder turns 30. 

MAGA Accounts vs. 529 Savings Accounts

Parents can already contribute to tax-advantaged education accounts for their children, known as 529 accounts. Details vary by state, but if the funds are used for qualified education expenses, the money grows and can be withdrawn tax-free.

Some states also offer other tax deductions and credits for educational expenses. For instance, Colorado provides a $118 contribution to 529 accounts for newborns and matches up to $500 a year of contributions during the first five years of the account. 

Parents wouldn’t need to choose between a 529 account or a MAGA account. They could contribute to both, or simply manage investments for the MAGA account to maximize its growth.

Universal Savings Accounts (USAs)

A separate proposed savings plan—called a universal savings account (USA)—would offer tax-advantaged savings to all citizens, not just parents. Sen. Ted Cruz (R-Texas) announced the USA bill on May 1, 2025, along with companion legislation introduced in the House of Representatives by Rep. Diana Harshbarger (R-Tenn.) 

This account most closely resembles a Roth IRA, but with fewer restrictions. Roth IRAs let you save earned income up to a certain amount every year ($7,000 for 2025, or $8,000 if you’re 50 or older). The contributions are taxable, but the money grows tax-free and can be withdrawn after age 59 ½ without taxes or penalties. If you withdraw before then, you may be subject to a 10% tax penalty.

But you can only contribute to a Roth IRA if your income is below a certain amount ($165,000 for single tax filers in 2025, with the allowed contribution reduced for people who make at least $150,000). The proposed USA option does not limit contributions based on income, and it offers tax-free distributions. The universal savings account would allow an initial deposit of up to $10,000, with contribution increases of $500 per year, up to a $25,000 annual limit. 

Supporters of the USA bill cite the restrictions on current tax-advantaged savings accounts such as Roth IRAs and 401(k)s, which may not be accessible before retirement or have complex rules and usage limitations. They say USA plans may increase participation in long-term savings, while freeing funds for short-term needs—like education and health care—without forcing account holders to pay early withdrawal penalties. 

But opponents of USAs argue that such plans would mostly benefit the wealthy and could reduce federal revenue. Commenting on an earlier USA proposal, the nonpartisan Center on Budget and Policy Priorities said initially, federal revenue could increase as 401(k) and IRA account holders, who enjoy tax-deferred benefits, switch to USAs, which are funded with after-tax dollars. But without taxes on withdrawals, revenue could later fall. In other words, the longer investors enjoy the tax advantages of a USA plan, the more the federal government will be deprived of tax revenue.

The Center also said studies show that tax subsidies do not increase overall savings rates. In fact, because the USA could make it easier to withdraw funds at any time and for any purpose, savings rates could actually fall, it says.

Better Than a Roth IRA?

Roth IRAs are a popular retirement plan choice, particularly for low- to moderate-income households. They’re designed as a retirement investment vehicle. As such, federal tax laws impose penalties on withdrawals before age 59 ½, unless you meet certain exception requirements. While Roth IRAs have advantages, USAs may offer a more hassle-free way to invest for retirement or for shorter-term savings goals.