Money Accounts for Growth and Advancement Act
The Money Accounts for Growth and Advancement Act (MAGA Act) would create a new type of tax-advantaged trust called MAGA accounts, designed for individuals who are under age eight at the time a MAGA account is established. These accounts would be exempt from federal income tax, with certain exceptions, and would be subject to specific rules about who can contribute, how much can be contributed, what investments are allowed, and when and how distributions can be taken. The purpose appears to be long-term savings to support education, credentialing, small-business needs, and homeownership for the account beneficiary, with distributions treated in a way that generally favors net capital gains treatment for qualified uses. The bill also establishes a separate MAGA Accounts Contribution Pilot Program that would provide a one-time $1,000 credit per eligible child to fund MAGA accounts, along with reporting, penalty, and administrative provisions. Overall, the bill would shift tax treatment and funding mechanisms toward a new, education- and growth-focused savings instrument for young children, supported by a federal pilot credit. Key design features include strict eligibility (beneficiaries under age 18 at establishment, and the account must be for a child who is under eight when opened), a hard annual contribution cap ($5,000, indexed for inflation after 2026), cash-only initial contributions (with rollover contributions possible in limited cases), and restrictions on distributions until certain ages and thresholds. The act also introduces penalties for improper claims to the pilot program and requires a set of disclosures and reporting to the Treasury and IRS. The balance of the bill combines a tax-exempt investment vehicle with a federally funded starter credit and a framework for ongoing administration and oversight.
Key Points
- 1Creation and tax status of MAGA accounts: Establishes MAGA accounts as tax-exempt trusts created for the exclusive benefit of a minor (under eight when established) with specification on the trustee, eligible investments (index-tracking, low-fee US equity funds), and rules to avoid commingling of assets. Distributions of investment earnings can be taxed differently from distributions of principal, per the bill’s structure.
- 2Contributions and investments: Annual contribution limit of $5,000 per taxable year (inflation-adjusted after 2026, with rounding to the nearest lower $100). Initial contributions must be cash and, with limited exceptions, must come from a donor other than government or the program, and the account beneficiary must be under 18 at contribution time. Eligible investments are defined as stock in a regulated investment company tracking a well-established US equity index, without leverage, and with low fees.
- 3Distribution rules and qualified uses: Distributions of principal (investment in the contract) are not taxable; distributions of income used for qualified expenses (such as higher education, post-secondary credentialing, certain small business or loan-related expenses, or first-time homebuyer costs) receive favorable tax treatment (treated as net capital gains). Other distributions are taxable. There is a 10% extra tax for distributions includible in gross income if the beneficiary is under age 30 in the year of distribution. Qualified expenses include education-related costs and certain other specified uses.
- 4Termination and duplication rules: MAGA accounts terminate at age 31, with the remaining balance treated as a distribution. If duplicate MAGA accounts exist for the same beneficiary (with limited exceptions), there is an excise tax on the portion of the cash value allocable to income, and withholding is required. The Secretary would issue notices to beneficiaries and trustees in case of duplicates.
- 5MAGA Accounts Contribution Pilot Program: Creates a one-time $1,000 credit per eligible child for taxpayers with respect to qualifying children, payable to the MAGA account for which the child is the beneficiary. Eligible individuals must be born after 12/31/2024 and before 1/1/2029. The Secretary would establish accounts for those not already designated as beneficiaries and would require SSNs, with an option for the recipient to decline. The Secretary would appoint a default trustee after considering reliability, costs, and other factors.
- 6Reporting, disclosure, and enforcement: Requires trustees to file annual reports to the Secretary and beneficiary; permits limited disclosure of return information to Treasury offices to facilitate contributions (for purposes of implementing the program). Establishes penalties for improper pilot program claims and corrects clerical errors related to SSN input.
- 7Effective date: Provisions apply to taxable years beginning after December 31, 2024, including the MAGA accounts themselves and the contribution pilot program.