Key Points
- MAGA accounts are a proposed federal savings account for children under 8, capped at $5,000 per year and limited to index fund investments.
- The accounts would allow tax-advantaged withdrawals for college, training, small business use, or a first-time home purchase, but offer limited tax benefits compared to 529 plans.
- A pilot program includes a $1,000 federal seed deposit for qualifying children born from 2025 through 2028.
Editor's Note: In the last budget revision, House GOP members renamed the MAGA account to the Trump Account. Otherwise, the account features all remain identical.
A new savings account for American families is being proposed, and it comes with both political branding and a narrower tax benefit than existing options.
The MAGA account, short for Money Account for Growth and Advancement, is part of the House Ways and Means Committee’s recently advanced budget legislation.
The program is designed to encourage families to save early for children’s futures, whether for education, small business investments, or homeownership. But while the proposed account adds flexibility around how funds can eventually be used, it does not offer the same level of tax advantages as existing 529 plans.
Supporters tout the plan as a patriotic tool to build generational wealth, but we note the limited tax benefits and tighter withdrawal rules. Still, with a proposed initial deposit of $1,000 for eligible newborns between 2025 and 2028, it may find traction among parents looking for an early boost in savings.
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How MAGA Accounts Would Work
MAGA accounts would be restricted to children under age 8 and managed by banks or investment firms. Parents, legal guardians, or certain nonprofits could contribute up to $5,000 per year, with that limit adjusted for inflation in future years.
Investments would be restricted to U.S. stock indexes, ruling out international diversification or actively managed funds.
The funds would not be accessible until the beneficiary turns 18. Even then, withdrawals between ages 18 and 25 would be limited to half of the account’s balance at age 18.
If the funds are used for qualified expenses (which include higher education, postsecondary credentials, small business or farming costs, or a first-time home purchase) the earnings would be taxed at capital gains rates.
Non-qualified withdrawals before age 30 would trigger ordinary income tax on the earnings and a 10% penalty.
If unused by age 31, the account would be considered fully distributed to the beneficiary.
@thecollegeinvestor Breaking down the MAGA account and how it compares to a 529 plan or UGMA/UTMA account. #investing #college #education #529plan ♬ original sound - The College Investor
How These Compare To 529 Plans And UGMA/UTMA Accounts
The MAGA account structure blends elements of both 529 plans and Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA) accounts, but it doesn’t fully replicate either.
Unlike 529 plans, which grow tax-free and allow tax-free withdrawals for qualified education expenses, MAGA account earnings would still be subject to capital gains taxes, even on qualified withdrawals. For non-educational qualified expenses like home purchases or small business startup costs, 529 plans do not offer any tax-deferred access. This is where MAGA accounts broaden the scope of allowable use.
Custodial investment accounts (UTMA and UGMA accounts) provide broader flexibility for both investment choices and spending, but don’t have any tax-preferred treatment beyond standard investment accounts. Earnings over $2,500 in unearned income are subject to the “kiddie tax,” at the parent’s tax rate.
Compared to those accounts, MAGA accounts offer a middle ground: more restrictions than UTMA/UGMA accounts, but with more flexibility than traditional 529s.
Feature | MAGA Account | UGMA/UTMA | 529 Plan |
|---|---|---|---|
Who Can Open | Parent or Guardian For Child Under 8 | Parent or Guardian For Minor | Anyone |
Ownership | Owned by Child | Owned by Child | Owned by Account Owner |
Age And Access Restrictions | Must Open Before 8 Years Old | Open For A Minor | None |
Annual Contribution Limits | $5,000 (will adjust for inflation) | No Limits | $19,000 (subject to gift tax rules) |
Investment Options | Limited to broad U.S. index funds | Anything | Limited to plan-specific portfolios, usually mutual funds or ETFs |
Access To Funds | No Access to Funds Under 18, 50% Access Between 18-25 | Custodian Controls Until Age of Majority (18 or 21) | Account Owner Controls Access, No Age Restrictions |
Qualified Expenses | Higher education, training, first-time home, small business/farm | Anything | Higher education, K–12 tuition (up to $10,000/year), student loan repayment (limited) |
Tax Treatment Of Qualified Expenses | Capital gains tax on earnings for qualified use | Earnings over $2,500 taxed at parent’s rate (kiddie tax) | Earnings grow tax-free; tax-free withdrawals for qualified education expenses |
Tax Treatment of Non-Qualified Expenses | Ordinary income tax + 10% penalty on earnings | Earnings over $2,500 taxed at parent’s rate (kiddie tax) | Ordinary income tax + 10% penalty on earnings + state tax on earnings |
Impact On Financial Aid | Student Asset | Student Asset | Parent Asset |
Seed Money | Proposed $1,000 Baby Bonus For Children Born 2025-2028 | None | Some states offer seed money bonuses |
Could The $1,000 "Baby Bonus" Happen?
The proposal also includes a pilot program offering a $1,000 federal contribution to qualifying MAGA accounts opened for children born between 2025 and 2028. These contributions would not count toward the annual $5,000 cap and would come from federal funds rather than family contributions.
Whether this baby bonus becomes law will depend on broader budget negotiations. Lawmakers have not yet detailed how many families would qualify or whether any income thresholds would apply. The proposed $1,000 deposit echoes past child savings account ideas floated by both Democrats and Republicans, but implementation has always been a hurdle due to cost and administrative complexity.
Still, a federally seeded account at birth could make a meaningful difference over time, especially for lower-income families who might struggle to save. But without tax-free growth or distribution like a 529 plan, the return on investment may be lower in the long run.
It's still a question of why add this new account and complexity? It's possible to achieve the same goals by expanding the qualified expenses of a 529 plan and seeding funding those accounts. Remember the Coverdell Account? Adding new account types with limited use cases doesn't make much sense.
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Editor: Colin Graves
Robert Farrington is the founder of The College Investor and is widely recognized as one of the nation’s leading voices on student loan debt and saving for college. He holds an MBA from UC San Diego Rady School of Management and has spent over 15 years researching, writing, and advising on student loans, 529 plans, financial aid programs, and saving and investing for young professionals.
Robert has been featured in the The New York Times, The Wall Street Journal, The Washington Post, NBC News, and Forbes, where he has been a regular personal finance contributor for over a decade. His work combines both professional expertise and personal experience – he successfully navigated his own student loan repayment journey and has helped thousands of readers do the same.
He is committed to making the intersection of personal finance and education transparent and accessible. You can learn more about Robert on the About Page or on his personal site RobertFarrington.com.