Republican lawmakers are introducing two new types of savings accounts that could reshape how Americans save money. The proposals—part of broader efforts to expand tax-free savings options—include a plan that would give $1,000 to newborns and another that allows all citizens to grow savings without income limits or withdrawal restrictions.
1. MAGA Account: A Baby Bonus With Long-Term Growth
Included in the current GOP tax bill is the proposed MAGA account, short for Money Account for Growth and Advancement. If passed, the Treasury Department would deposit $1,000 for every baby born between 2025 and 2028, provided their parents have Social Security numbers.
Beyond this initial deposit, others—including family, friends, employers, or nonprofits—could contribute up to $5,000 per year. The money could be invested in stocks and would grow tax-deferred.
Withdrawals would be allowed after the child turns 18, with favorable tax treatment if used for qualified expenses such as education, a first home, or starting a business. Half the funds would become available between ages 18 and 25, and the rest at 25. After age 30, the account holder could use the funds for any purpose without restrictions.
While tax rules are still under discussion, one version of the bill proposes that withdrawals for qualified expenses would be taxed at long-term capital gains rates, which are lower than regular income taxes. Another version suggests no taxes at all on these withdrawals. Non-qualified withdrawals, however, would be taxed as regular income.
Parents would also be allowed to open MAGA accounts for children under age eight, but only newborns would qualify for the $1,000 federal deposit.
2. MAGA vs. 529 Education Accounts
Currently, families use 529 savings plans to save for education. These accounts grow tax-free and allow tax-free withdrawals when used for qualified educational expenses. Some states also offer extra benefits like tax deductions and matching contributions.
The MAGA account would be more flexible than a 529. It could be used not just for education, but also to fund a business or buy a home. Parents could choose to contribute to both accounts to maximize benefits.
3. USA Account: Flexible Tax-Free Savings for All Adults
Separate from the MAGA proposal, Republicans have also introduced a Universal Savings Account (USA). This account is designed to be accessible to all adults, regardless of income level, and could serve as a more flexible alternative to retirement accounts like Roth IRAs.
The USA plan was introduced in May 2025 by Sen. Ted Cruz (R-Texas) and Rep. Diana Harshbarger (R-Tenn.). It would allow tax-free growth and withdrawals, with no restrictions on how or when funds are used.
Citizens could initially deposit up to $10,000, with annual contribution limits increasing by $500 each year, reaching a cap of $25,000 annually. Unlike Roth IRAs, the USA account has no income limits and does not penalize early withdrawals.
Comparison: Roth IRAs vs. USA Accounts
| Feature | Roth IRA | Universal Savings Account (USA) |
|---|---|---|
| Tax-Free Growth | ✅ | ✅ |
| Income Limit | Yes ($165,000 max) | No |
| Early Withdrawal Penalty | Yes (10% before 59½) | No |
| Usage Restrictions | Yes (mostly retirement) | No |
| Contribution Limit | $7,000 (plus $1,000 if 50+) | $10,000 (increasing annually) |
4. Support and Opposition
Supporters of both MAGA and USA accounts argue these options would help Americans save more easily for both long-term and short-term goals. They note that current savings tools like 401(k)s and Roth IRAs often come with complex rules, age restrictions, and penalties that discourage participation—especially among younger and lower-income individuals.
Critics, however, argue the proposals may favor wealthy individuals and increase federal deficits. The Center on Budget and Policy Priorities, a nonpartisan group, warns that while USA accounts may lead to short-term tax revenue gains, the long-term effect could be a loss in revenue, as more savings grow tax-free.
They also point out that such tax incentives may not actually increase overall savings rates. In fact, they could encourage premature withdrawals, lowering national savings.
5. Lessons from Canada and the UK
The USA account is modeled loosely on similar programs from other countries.
Canada’s Tax-Free Savings Account (TFSA)
Canada has offered TFSAs since 2009. These accounts allow after-tax contributions and tax-free withdrawals for any reason. In 2024, the contribution limit was CA$7,000 (around $5,200 USD).
According to the Tax Foundation, 58% of Canadians own TFSAs, compared to 46% who hold retirement accounts like 401(k)s or IRAs. TFSAs have been particularly effective for low- and middle-income earners.
United Kingdom’s Individual Savings Account (ISA)
The UK offers Individual Savings Accounts (ISAs), which work similarly to Roth IRAs but without income caps or early withdrawal penalties. In the 2025–2026 tax year, UK residents can contribute up to £20,000 (about $25,000 USD) annually.
Parents can also open Junior ISAs, allowing up to £9,000 in yearly contributions for their children. Around 42% of UK adults participate in ISAs, and the average account holds around £33,000.
Both systems have shown that offering flexible, tax-advantaged savings tools can boost participation across income levels—especially when there are no penalties for early use.
6. Possible Uses for USA Accounts
USA accounts are designed to offer flexibility and freedom, and could serve different goals depending on a person’s needs:
Retirement Planning
Middle- and high-income earners could use USAs alongside their existing retirement plans. Because there are no penalties for early withdrawal, they could use the funds to handle surprise expenses—like home repairs or medical bills—without touching their 401(k)s or IRAs.
Short-Term Goals
Families could use USAs to save for education, a first home, or health care needs. Some may even use it as a backup to Health Savings Accounts (HSAs), since it allows for flexible spending.
Investment Strategy
USA accounts would act like regular investment accounts. They’d allow for investments in stocks, bonds, mutual funds, and other assets. Since many financial institutions offer low-fee accounts, USAs could help diversify a person’s portfolio while offering tax-free returns.
Bottom Line
The proposed MAGA and USA accounts could give Americans more tools to build savings with fewer restrictions and more tax benefits. But the plans are also drawing concern for potentially boosting inequality and draining federal revenue over time. As Congress debates the proposals, the outcome could have a lasting impact on how Americans plan for their financial futures.
Read More:
