How ‘MAGA Accounts’ With $1,000 Savings for Babies Would Work

The $4 trillion tax bill released May 12 by House Republicans, which sets the stage for a Congressional battle over President Donald Trump’s key economic legislation, includes an unusual provision: the creation of a new savings vehicle dubbed “MAGA accounts” that would be seeded with $1,000 for each American baby born in the next few years.

The funds, which would be invested in US equities and locked up until the child turns 18, are meant to defray the costs of higher education, training programs, small business loans or first-time home purchases. The idea, according to the text of the bill, is to promote “financial security.”

Here’s how they’re supposed to work.

Who qualifies for MAGA accounts?

Under the bill, a MAGA account — known formally as Money Account for Growth and Advancement — could be set up by parents who have children under age eight starting on January 1, 2026.

Also, through a pilot program, the US government would contribute $1,000 to accounts for babies born from the beginning of 2025 through the end of 2028. The US Treasury would automatically set up accounts for eligible children who don’t already have them.

How much money could be added to MAGA accounts?

For each account, the annual contribution limit would be $5,000, an amount that would be adjusted for inflation. The idea is for parents, relatives and even the employers of caregivers to pitch in money over time. The federal government, as well as state, local or tribal governments, could also contribute and are not subject to the cap.

Another exception to the contribution limit applies to nonprofits, including 501(c)(3) and 501(c)(4) organizations, which could give to recipients selected based on where they live, their school district or other criteria.

How do the accounts work?

All contributions must be in cash, and could be made up until the beneficiaries’ 18th birthday. Only one account is allowed per person.

The accounts would be administered by banks or other institutions. Regulations would require the funds be invested only in US stocks through index funds or other diversified portfolios. Funds must also charge low fees and not use leverage, according to the bill.

What could beneficiaries do with their money?

MAGA accounts couldn’t be touched until age 18, and then only half could be withdrawn before the beneficiary turns 25. The account would be closed and distributed to its holder at age 31.

What are the tax advantages of MAGA accounts?

The accounts wouldn’t be taxed until money is withdrawn. Beneficiaries would pay long-term capital gains tax rates – which are much lower than those on ordinary income – as long as the money goes to certain qualified expenses. Spending on college and other post-secondary education qualifies, as well buying a home or the costs associated with starting a small business.

Distributions for other expenses are taxed as regular income, plus an additional levy of 10% if the account holder is under 30.

How would MAGA accounts compare to 529 college savings plans?

Generally, MAGA accounts would have fewer tax benefits and more restrictions on the timing of withdrawals than 529 college savings plans.

With a 529 plan, withdrawals are tax-free for qualified educational expenses, and contributions are often eligible for state income tax deductions. MAGA account holders would still pay taxes on withdrawals, though at a lower rate than they’d pay on ordinary income. You would also need to wait until age 25 to pull out all the money in your MAGA account, though it could be used for a broader array of financial goals.

How much would this plan cost the federal government?

Contributing $1,000 for each baby born from 2025 through 2028 would cost nearly $13 billion, the Joint Committee on Taxation says.

The tax benefits of MAGA accounts, meanwhile, would add up to $4.5 billion over ten years, according to JCT estimates, a tiny fraction of the overall tax package.

Where did this idea come from and who supports it?

An idea for government-funded “baby bonds” was first proposed by economist Darrick Hamilton, a professor at the New School in New York, as a way to help poor Americans build assets and narrow the racial wealth gap. His proposal has been taken up by Democratic politicians, including New Jersey Senator Cory Booker. Several states, including Connecticut, have set up baby bond programs or are in the process of doing so. Hamilton said he is skeptical of MAGA accounts, which he called a proposal to “address wealth inequality on the cheap.”

The impetus for MAGA accounts appears to have come from Kevin Hassett, director of the White House National Economic Council, who last year began promoting, along with economist Robert Shapiro, the idea of accounts seeded with $1,000 for newborns. It’s a “simple solution to help people be connected to financial markets so everybody in the country shares in the wealth,” Hassett said at a presentation to the Aspen Institute in October.

Texas Republican Senator Ted Cruz also proposed a version of the idea May 12, touting support for the concept from billionaire Michael Dell. The founder of Dell Technologies has a net worth of $116 billion, according to the Bloomberg Billionaires Index.

President Donald Trump’s White House voiced support for the proposal as well.

“MAGA accounts would empower American children to reap the American Dream with a strong financial foundation,” Trump spokesman Harrison Fields said in a statement. “This historic policy, paired with bold tax cuts, economic growth, and overdue relief for families, workers, and small businesses, reflects President Trump’s America First priorities.”

— With assistance from Josh Wingrove