Federal 'Baby Bonds' Bill Targets Wealth Gap with $1,000 Accounts for Every U.S. Newborn

This joint resolution is essentially two bills stapled together, but the main event is the American Opportunity Accounts Act, which aims to tackle wealth inequality starting at birth. It creates a federally-funded savings account, nicknamed a "Federal Baby Bond," for every child born in the U.S. who is a citizen or resident alien, starting on or after January 1, 2024. The Treasury Secretary would open these accounts with an initial deposit of $1,000 for every eligible newborn.

The Income-Based Boost: How the Deposits Scale Up

After the initial grand, the bill introduces annual supplemental deposits that are aggressively weighted toward lower-income families. This is where the policy really focuses on leveling the playing field. The annual deposit is determined by a sliding scale based on the family’s income relative to the Federal Poverty Level (FPL). For example, a child in a household at or below 100% of the FPL (the poorest families) would receive an additional $2,000 deposited annually. That’s $3,000 in the first year. The amount decreases as income rises, phasing out entirely for households above 500% of the FPL. These deposits continue every year until the account holder turns 18, meaning a child from the lowest-income bracket could potentially accumulate over $37,000 before investment growth, directly addressing the fact that many young adults start life with zero savings.

The Long Game: Investment and Restrictions

These accounts aren't just sitting in a low-interest bank account. The Treasury Secretary is tasked with managing the funds and investing them in a portfolio of low-cost index funds, similar to what federal employees use in the Thrift Savings Plan. The money grows tax-free, and any withdrawals for qualified expenses are also tax-free. However, there’s a catch—and it’s a big one—for how the money can be used after the account holder turns 18. Funds can only be used for specific, wealth-building purposes: postsecondary education, purchasing a home, investing in a business, saving for retirement, or paying for "emergency expenses" (a category the Treasury Secretary still needs to define). If a young adult decides to use the money for, say, a non-qualified expense like a new car or a vacation, they face a 10% penalty on the withdrawal, and the amount is treated as taxable income. This structure is designed to force the funds toward activities that generate long-term stability and wealth.

The Administrative Tangle and the D.C. Curveball

While the Baby Bond program is the heart of the bill—and represents a massive new federal expenditure requiring significant appropriation—the resolution also includes a separate, procedural action: it explicitly disapproves the D.C. Income and Franchise Tax Conformity and Revision Temporary Amendment Act of 2025. For D.C. residents and the local government, this means a local tax law passed by the D.C. Council is effectively nullified by Congress. It’s a classic example of Congress exercising its oversight role over the District, but it creates uncertainty for D.C.’s local tax structure right alongside the creation of a major new national savings program. For the rest of the country, the main takeaway is the potential for a new generation to start their adult lives with a significant, federally-backed financial cushion, provided they stick to the rules about how they spend it.