Trump's One, Big, Beautiful Bill Establishes a "MAGA" Savings Account

The Trump administration released its initial tax bill -- known as The One, Big, Beautiful Bill -- and it contains several proposals that have been widely expected. For example, it proposes an increase in the Child Tax Credit and extending the tax cuts passed during the first Trump administration.

In addition, the bill includes the proposed creation of "MAGA accounts" that could help put babies born as U.S. citizens on the right financial track.

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What is the "MAGA" savings account?

One of the more interesting proposals in the new spending bill is the idea of creating a $1,000 savings account for every baby with a Social Security number. The accounts are officially called money account for growth and advancement, giving them the initials MAGA, matching the acronym for the Trump-led Make America Great Again movement.

In a nutshell, the idea would be for the government to invest the money on behalf of the child so the child would have significantly more money when they turn 18 and can access the funds.

To be clear, it isn't designed to be just a $1,000 savings account. The government's contribution is intended as just a starting point. In addition, friends, family, and employers of each child could contribute as much as $5,000 every year into the account.

Distributions from the accounts couldn't be made until the beneficiary child turns 18 and must be made before the beneficiary turns 31. Initially, accounts could be created for citizens born from 2025 through 2028.

According to the bill, money in the accounts could be invested in a vehicle that "tracks a well-established index of United States equities (or which invests in an equivalent diversified portfolio of United States equities), does not use leverage, minimizes fees and expenses, and meets such other criteria as the Secretary determines appropriate for purposes of this section."

Presumably, something like an S&P 500 index fund could be a good example. The "MAGA" accounts would enjoy limited tax benefits. Investments would grow tax-deferred, but even covered distributions (more on that in a bit) would be subject to capital gains tax on any profits. Therefore, it's not quite as good as a 401(k) or a 529 college savings account, but the $1,000 head start is certainly a differentiator.

Money could only be withdrawn for specific purposes, including:

• Qualified higher education expenses
• Qualified post-secondary credentialing expenses
• Certain expenses of starting a small business
• To be used toward the purchase of a first home

Distributions for non-covered reasons would be allowed but subject to an additional 10% tax penalty if the beneficiary is under 30.

Will "MAGA" savings accounts become a reality?

The "MAGA" savings account is just one proposal in a 389-page bill that's in the very early stages of making its way through the process of becoming a law. In short, it's a long way from the finish line.

Having said that, the creation of savings vehicles like these have historically been popular on both sides of the aisle. Both Democrats and Republicans have proposed variations of this idea in recent years. It's estimated that the cost of the proposal would be $17.3 billion over the next decade, so it might be a tough sell to some fiscally conservative lawmakers.

In a nutshell, the proposal would still need to make it through both the House of Representatives and Senate to become a reality. However, it isn't the least popular part of the spending bill by any means and could gain traction in the coming months as the legislative efforts evolve.

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