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Investing.com -- A notable feature of the $4 trillion “One, Big Beautiful Bill” introduced by House Republicans is the establishment of a novel savings mechanism, referred to as "MAGA accounts." These accounts are designed to provide a financial head start for newborn Americans by allocating $1,000 to each child born in the upcoming years.
In addition to the initial $1,000 seed money from the U.S. government, the accounts can receive up to $5,000 in contributions every year from friends, family members, and employers.
The proposal outlines that the funds in these MAGA accounts would be invested in U.S. equities and would remain inaccessible until the beneficiary reaches the age of 18.
The funds grow tax-deferred and are taxed at the capital gains rate upon withdrawal.
The primary goal of this initiative is to offset future expenses associated with higher education, vocational training programs, entrepreneurship through small business loans, or buying a home. The bill’s language emphasizes the promotion of "financial security" for the next generation.
The concept of providing financial assistance to young Americans for key life milestones is an innovative approach to social welfare and economic empowerment. By focusing on investment in U.S. equities, the bill also signals a commitment to domestic markets and the long-term economic prospects of the country.
Republican Senator Ted Cruz, the architect of the ‘MAGA accounts’, said it gives every U.S. child skin in the game.
“What it does is it takes every child in America and it gives them number one, the miracle of compound growth, the ability to accumulate wealth, which is transformational,” Cruz said when describing the accounts on CNBC. “But number two, it makes them stakeholders. It gives them a stake in the American free enterprise system. “
Commenting on how valuable the accounts could become for owners of them, Cruz said that a baby born this year, starting with the initial $1,000 seed money and adding $5,000 per year at a 7% growth rate, by the time they’re 18, they would have $170,000 in the account. By the time they’re 35, they would have $700,000 in the account.