Every parent wants their child to have the best possible start in life, but it's not always easy to save money for their future. Many Americans spend all they have meeting their child's basic needs, leaving little for things like higher education.
A new proposal in House Republicans' "One, Big, Beautiful Bill" could make that a little easier for families of some young children. Here's what you need to know.
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The new tax bill proposes the creation of MAGA accounts
You probably know MAGA as the abbreviation for President Donald Trump's "Make America Great Again" slogan. But in this case, it actually stands for "Money Account for Growth and Advancement." These are special trust accounts that would be available for the benefit of minor children under the age of eight years old.
If the bill passes, you'll be able to open one of these accounts on behalf of your child beginning in 2026, and you'll have the option to contribute up to $5,000 per year, subject to cost-of-living adjustments (COLAs), until your child turns 18. A trustee, like a bank, would manage the account, and you'll be able to invest the money into certain eligible index funds to help it grow more quickly.
Your child won't be able to withdraw any money from the account until they turn 18, and they'll only be able to withdraw up to half the account's value (recorded at age 18) before they turn 25. For example, if there were $10,000 in the account on their 18th birthday, they could only withdraw $5,000 before their 25th birthday.
Your contributions to the account would always be tax-free to your child. The investment earnings may be taxed at more favorable capital gains rates if your child uses the money for higher-education expenses, apprenticeships, other educational credentials, small-business or farm start-up costs, or a first home purchase. Otherwise, they'd pay ordinary income taxes on earnings, plus a 10% penalty if they're under 30 at the time.
When the beneficiary turns 31, the account would terminate and all funds would be treated as distributed. This means they could owe taxes on any remaining investment earnings at that time.
Pilot program offers free $1,000 credit for children born between 2025 and 2028
To jump-start the MAGA account initiative, the bill proposes a pilot program for children born between 2025 and 2028. All children who are U.S. citizens would be eligible for a one-time $1,000 credit to their MAGA account.
If your child doesn't already have a MAGA account, the IRS will create one for them. It would also give you the opportunity to opt out of this if for some reason you don't want to participate.
As attractive as this account sounds, it's important to note that there's no guarantee the proposal becomes law. The relevant tax bill still has to pass the House, then go through the Senate, meaning there's still potential for changes. That said, it's something to keep an eye on, especially if you have a child who could be eligible for the $1,000 credit.
