By Ashlea Ebeling and Oyin Adedoyin

The Republican tax bill that is being discussed Tuesday in the House Ways and Means Committee proposes a new savings account for young children that comes with $1,000 in seed money from the government.

What is the proposal?

It is a new tax-preferred savings account for children called the "money account for growth and advancement," or MAGA account. It would be created and funded by the Treasury Department with $1,000 each for citizens born from 2025 through 2028, the rough period of President Trump's second term.

Families could contribute an additional $5,000 a year into the accounts on behalf of their children. Additional contributions from charities would be permitted under rules that the Treasury would establish. A trustee, in most cases a parent, would direct the investments, which could include mutual funds.

Think of it sort of like a hybrid between a 401(k) and a 529 college savings account, but far less generous. The money is supposed to be an investment to grow alongside the beneficiary.

"It's promising in this pilot program that they're basically saying 'file your taxes and we'll open up this account for your kids,'" said Madeline Brown, senior policy associate at the Urban Institute, a nonpartisan policy research group.

What is the fine print?

The tax benefits of the account are limited. The money grows tax-deferred. When it is taken out for covered expenses, such as to pay for higher education or to buy a first home, it would be subject to capital-gains taxes. Distributions for non-covered expenses would be includable in income and subject to an additional tax of 10% if the beneficiary is under age 30.

Distributions wouldn't be permitted until age 18. Once the beneficiary turns 31, the account would be treated as distributed to the beneficiary.

Like with custodial bank accounts for minors, the adult trustee in this case who would manage the account could only use the money in it for the child's benefit. A penalty of $1,000 would be imposed in the case of fraud.

Has something like this been considered before?

Many policymakers, including Sens. Cory Booker (D., N.J.) and Todd Young (R., Ind.), have proposed versions of these accounts. Industry leaders back the idea. Larry Fink, chief executive of BlackRock, has touted the accounts as a way to democratize investing.

The accounts are a variation on new state-run baby bond programs. Connecticut's program, which launched in 2023, automatically deposits $3,200 into a trust on behalf of any Connecticut child whose birth is covered by the state's Medicaid program. These programs typically are restricted to children from low-income families, and there is no way to add money to the accounts.

Rep. Richard Neal (D., Mass.), the top Democrat on the Ways and Means Committee, said he has been open to "baby bonds" ideas and noted that George McGovern proposed something similar in his 1972 presidential campaign.

"One thing you've learned around here on the Republican side is you can never extol the virtues of the leader enough," he said. "I'm surprised they didn't call them the Trump something."

How likely is this to become law?

The House Ways and Means Committee meets Tuesday to consider the plan, which is expected to advance easily and get folded into Trump's "one big beautiful bill."

It still has to get through the full House and Senate. Sen. Ted Cruz (R., Texas) is trumpeting the idea.

The Joint Committee on Taxation pegs the cost of these new accounts to the Treasury at $17.3 billion over 10 years.

What else is in the tax bill for parents?

The maximum child tax credit would increase to $2,500 from $2,000, starting this year. That would mean that many taxpayers who don't change their withholding would see larger-than-expected refunds in spring 2026.

For a middle-income married couple with two children in the 12% tax bracket, when combined with a proposed increase to the standard deduction, it would mean a $1,240 tax cut for tax year 2025.

Write to Ashlea Ebeling at ashlea.ebeling@wsj.com and Oyin Adedoyin at oyin.adedoyin@wsj.com

(END) Dow Jones Newswires

May 13, 2025 15:36 ET (19:36 GMT)

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