As currently written in the draft legislation, the MAGA account would allow parents to contribute up to $5,000 per year that would be invested in U.S. equities. Money contributed to the account could be put toward qualifying expenses like school or job training expenses, to buy a home, or to start a small business. Republicans are still working out what they mean by tax advantaged. One plan says it would be “exempt for taxation,” while another bill summary says the withdrawals would be taxed at the long-term capital gains rate, akin to a brokerage account. The government could also contribute, and those would not be subject to a cap.
The proposed MAGA savings accounts would represent a new vehicle for parents to save for their children, but states have long offered variations of such plans—meaning parents would want to evaluate the various merits of each.
A custodial Roth IRA, meanwhile, is a Roth retirement account managed by a parent or guardian for the benefit of their under-18 (or 21, depending on the state) child. When they reach adulthood, the accounts are rolled over to a standard retirement vehicle.
And depending on how withdrawals are taxed, they may not be that advantageous to many savers, says Sam Taube, lead investing writer at personal finance site Nerdwallet.
If withdrawals are taxed at the long-term capital gains rate, “this would effectively be the same tax treatment as a passively-invested brokerage account, except that in a normal brokerage account, all sales of investments that have been held for more than one year are taxed at the long-term capital gains rate, regardless of what you’re using the money for,” says Taube. In that way, the MAGA account would actually be less advantageous, because it limits when beneficiaries can use the funds and what they can be used for.
Aside from what funds invested in the accounts can be used for, one of the main differences between the proposed MAGA accounts and existing accounts for kids is the $1,000 the federal government is proposing to give children born from 2025 through 2028 says Taube. But similar funding options exist at the state level in some places.
Something to watch out for, says Taube, is that some state 529 programs have income limits, and the funds can only be spent on educational expenses, limiting their usefulness.
“The proposed MAGA accounts, in their current form, may offer a little more flexibility, both in terms of income-based eligibility and in terms of what the money can be spent on,” says Taube. “But it’s not one-or-the-other. Given that the proposed MAGA accounts are not 529 plans, parents could take advantage of both.”
The GOP tax bill is still being debated, and needs to pass both the House and Senate before President Donald Trump can sign off on it, something that could take months.
Republicans are under something of a ticking time bomb to pass their bill. The last time Trump was in office, the sweeping tax legislation he signed into law came with an end date: Most of the provisions, especially those related to individual tax cuts, would expire at the end of 2025.
