Soon, every freshman American can become the proud owner of his own “Maga Account.”
This is based on a plan buried deep in the Republican Party’s “a large bill” that is currently experiencing a slight deadlock in the house. The legislation includes a pilot program that will automatically create a new, tax-promoted investment account and provide $1,000 for every child born from early 2025 to the end of 2028.
In this case, MAGA technically stands for “currency that accounts for growth and progress”, although this obviously also means paying tribute to President Trump’s most famous slogan. Whether you love or hate Trump’s brand, supporters of this idea say it’s a way to make all children save and invest early, while helping them save for goals like college or family.
But financial advisers who spoke with Yahoo Finance warned that the benefits provided by accounts were relatively insignificant compared to other tax savings saving programs, including 529 accounts that Americans already have access to, parents used to invest money for college. The new Maga account also kidnapped a rather complicated and potentially confusing set of rules.
As a result, putting any money into government-provided funds makes no sense for most families.
“It's not very attractive,” Alpha Financial Advisors CEO Ann Reilley said of the plan. “It seems they're complicated for no reason.”
Under the proposal, parents can choose to open a Maga account for any child under the age of 8 in their family of choice, but only newborns can get $1,000 for free. If parents are unable to set up an account for babies, the government will automatically create an account and notify them.
From there, donations to the account will be $5,000 a year, with local charities limited gifts. This money can be tax-free until withdrawn, but must be invested in a wide range of stock indexes.
This is the tax advantage. Once cashed out, the return on investment will be taxed as long-term capital gains, but only if the funds are used for one of the few approved purposes. This includes paying for higher education or other vocational training, starting a small business or making a down payment on the first home.
Money spent on anything else will be considered ordinary income.
Overall, this is less than investing funds into 529 Higher Education or Roth IRA retirement accounts, as both options allow investors to be fully tax-free. The MAGA account also comes with an attached string, which can make management tricky. Children can start to take out their savings once they turn 18, but they cannot use more than half of them before they are 25 years old. Then, at the age of 31, all cash is automatically paid.
