The proposed House Ways and Means tax bill introduces a new type of investment account that could change how American families save for their children’s future.
The legislation includes a provision to create a new tax-advantaged savings vehicle called the Money Account for Growth and Advancement, or what’s being referred to as a “MAGA” account.
These accounts, according to Ben Henry-Moreland, a senior financial planning nerd at Kitces.com, aim “towards encouraging parents to provide some savings to their children that they can later use to go to college, start a business, or buy a home as young adults.”
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The proposal, according to some, including the Investment Company Institute, the lobbying group for the mutual fund industry, represents a significant addition to the landscape of tax-advantaged accounts available to American families.
It would join familiar vehicles like 529 plans, ABLE accounts, Roth IRAs, and custodial accounts.
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“The inclusion of the new “money accounts for growth and advancement” would foster a culture of investing among young people,” the ICI said in a statement. “The accounts will help put a generation of young Americans on track to a lifetime of financial security as they see the power of compounding first-hand.”
Proposed MAGA accounts aim to help families save for children’s futures with tax advantages and government seed money, but experts question their value over existing options.
How MAGA accounts would work
Jeffrey Levine, the chief planning officer at Focus Partners, stated on X that the accounts can be established for beneficiaries under age 8. He added that “new contributions would be accepted beginning in 2026 for beneficiaries (‘beneficiary’ similar to a 529 plan) under 18.”
There’s a $5,000 maximum annual contribution, which is inflation-adjusted, according to Levine. No distributions, according to Levine, are allowed before the beneficiary’s age 18, and “distributions from 18-24 are limited to 50% of the beneficiary’s age 18 value.”
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Of note, “when the account beneficiary turns 31, the account is terminated and fully distributed to the beneficiary,” according to Henry-Moreland.
According to Levine, investments “MUST be invested in the ‘stock of a regulated investment company’ that invests in diversified U.S. equities, does not use leverage, and ‘minimizes fees and expenses.’”
The tax treatment of these accounts creates a hybrid model that borrows elements from several existing account types. Henry-Moreland points out that “there’s no tax deduction for contributing” to these accounts, placing them in the same after-tax contribution category as Roth IRAs and 529 plans.
How MAGA accounts differ from an IRA for kids
Unlike Roth IRAs, which require the account owner to have earned income, MAGA accounts would share a key feature with 529 plans by not imposing an earned income requirement for contributions.
This flexibility would allow parents, grandparents, and other interested parties to fund these accounts regardless of the child beneficiary’s employment status.
Levine also notes that “distributions of principal would be tax-free” when withdrawals are made.
What’s more, “distributions used ‘exclusively’ for ‘qualified expenses’ would be a capital gain for the distributee,” providing some tax advantages for specific uses, said Levine.
Ordinarily, a distribution from a traditional IRA would be taxed as ordinary income while distributions from a 529 plan used for qualified education expenses are exempt from federal income tax.
According to Levine, “all other distributions (from a MAGA account) would be ordinary income and, if the beneficiary is under 30, subject to an additional 10% penalty,” creating a disincentive for early withdrawals unrelated to the account’s intended purposes.
Qualified expenses would include higher education costs, purchase of a primary residence by a first-time homebuyer, expenses related to a small business that has taken a small business loan, and post-secondary credentialing costs.
Experts skeptical of MAGA account benefits
To encourage adoption, the bill includes a pilot program that provides a $1,000 refundable credit from the Treasury Department—automatically deposited into a MAGA account—for every child born between Jan. 1, 2025, and Dec. 31, 2028, according to Robert Westley, regional wealth advisor at Northern Trust.
Henry-Moreland described the initiative as an effort by Congress to “jumpstart the use of these accounts by establishing and funding a $1,000 MAGA account for each U.S. citizen born during that period.”
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Despite the government’s attempt to incentivize these accounts, financial planning experts remain skeptical about their relative value compared to existing options.
“I don’t honestly see much benefit in having a MAGA account,” said Henry-Moreland. “Taxable custodial accounts have more flexibility and are nearly identical from a tax perspective, but don’t have any tax penalties for nonqualified distributions, while Roth IRAs and 529 plans are more restrictive in how they can be used, but have much better tax benefits. And it’s hard to argue that we need yet another type of tax-preferenced account with its own set of rules and restrictions to navigate.”
Others share that point of view. With government seed money, MAGA accounts provide a head start on savings that is not offered by 529 plans, IRAs, or other custodial accounts, said Westley.
However, MAGA accounts come with fewer tax advantages and more withdrawal restrictions as compared with other types of accounts,” he said.
To be sure, the proposed legislation is part of ongoing efforts to address the financial preparedness for young Americans entering adulthood with significant expenses ahead.
The proposal comes at a time when higher education costs continue to rise, housing affordability presents challenges for first-time homebuyers, and young entrepreneurs face barriers to starting businesses.
Still, experts question whether this solution offers advantages compelling enough to warrant adding yet another specialized account type to America’s already complex financial landscape.
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