Invest America Act
The Invest America Act would create a new type of tax-advantaged account called an Invest America Account (IAA). IAAs would be designated trusts, established for the exclusive benefit of an individual, with strict rules about who can contribute, what investments are allowed, when money can be withdrawn, and how they are taxed. Contributions would be limited to $5,000 per year (with automatic COLA adjustments starting after 2026). Eligible investments would be mutual funds or ETFs that track the S&P 500 index. IAAs would be exempt from federal income tax, except that income earned by charitable organizations that holds these accounts could still face unrelated business income tax. Distributions from IAAs would generally be taxed as net capital gains, with an exception for qualified rollover contributions. The bill also creates a federally funded program to provide $1,000 to every eligible newborn for an IAA, and it automates the establishment of IAAs for those newborns who do not yet have one. The legislation would take effect for taxable years beginning after December 31, 2024.
Key Points
- 1Create Invest America Accounts (IAAs): A new tax-advantaged trust aimed at individual beneficiaries, subject to specific governance, contribution, and investment rules. Eligible investments are mutual funds or ETFs that track the S&P 500 index.
- 2Tax treatment: IAAs themselves are exempt from federal income tax, but distributions are treated as net capital gains (rather than ordinary income), with an exception for qualified rollover distributions. There are rules governing how distributions are taxed and reported.
- 3Contribution rules: Annual contribution limit of $5,000 per taxable year, adjustable for inflation after 2026. Contributions generally must be in cash and cannot push the yearly total over the limit, with a special provision for qualified rollover contributions.
- 4Eligibility and distributions: Distributions before age 18 are generally not allowed (except for qualified rollover distributions). Account balances must be nonforfeitable, and assets cannot be commingled except in a common fund. Custodians must be banks or similarly qualified entities.
- 5Reporting and penalties: Trustees must file required reports to the Secretary and beneficiaries; there are new rules about reporting and penalties for failure to report, and new provisions to handle excess contributions.
- 6Qualified rollover contributions: Contributions to IAAs can be made as direct trustee-to-trustee transfers or as contributions under section 3(a) of the Act, and these contributions would not be taxed as distributions.
- 7Federal contributions to IAAs: For each eligible newborn (born after July 4, 2026, a U.S. citizen with at least one citizen parent), the Secretary of the Treasury must provide $1,000 to the child’s IAA. If the child does not have an IAA, the Treasury must automatically establish one and select a provider based on fees, performance, and administration.
- 8Tax and reporting changes: The bill adds a new section (139J) to codify that federal contributions to IAAs are not included in gross income. It also expands an excise tax on excess contributions to include IAAs.
- 9Effective date: Provisions apply to taxable years beginning after December 31, 2024.