MAGA Accounts: New Savings Plan Offers $5,000 Annual Limit and $1,000 Tax Credit for Kids Under 8

The “Money Accounts for Growth and Advancement Act”—or MAGA Act—introduces a brand-new, tax-advantaged savings vehicle designed specifically for young children. Think of it as a specialized, souped-up 529 plan, but with tighter rules and a clear expiration date. Starting in 2026, parents or guardians can contribute up to $5,000 annually (adjusted for inflation) into a MAGA account for a child, provided that child was under age 8 when the account was first established. The core benefit is tax-free growth on contributions, similar to a Roth IRA, though the earnings portion is taxed differently upon withdrawal.

The $1,000 Government Boost and Auto-Enrollment

Section 3 of the bill creates a significant incentive: a one-time $1,000 tax credit for every eligible child. This isn't money you get back on your tax return; the Treasury Secretary is required to deposit this $1,000 directly into the child’s MAGA account. This program applies to children born between late 2024 and early 2029. Crucially, if an eligible child doesn't have a MAGA account when their parent files taxes, the Secretary must automatically set one up. Parents can opt out of this automatic setup, but if they don't, the government essentially kickstarts the child’s savings with a guaranteed grand. This provision means the government is getting into the business of setting up personal financial accounts, which is a big administrative lift for the IRS and Treasury, potentially leading to confusion for parents who didn't ask for the account.

Strict Rules on Investment and Withdrawal

If you’re used to managing your own brokerage account, the investment rules here are restrictive. Funds in a MAGA account can only be invested in shares of regulated investment companies (like mutual funds) that track a well-known U.S. stock index, do not use leverage, and keep fees low. This is designed to keep risk down and maximize returns by avoiding high-fee, actively managed funds. Contributions must be cash, and generally, you can’t touch the money until the beneficiary turns 18.

Once the beneficiary is an adult, withdrawals used for “qualified expenses” receive favorable tax treatment. These expenses are broadly defined and include college tuition (similar to 529 plans), post-secondary credentialing, payments on small business or farm loans taken out by the beneficiary, and, importantly, the purchase of the beneficiary’s first principal residence. If you pull out earnings for these qualified uses, that portion is taxed at the net capital gains rate, which is often lower than standard income tax. If you withdraw earnings for something else before age 30, that money is taxed as regular income, plus a stiff 10% penalty.

The Expiration Date

One of the most unique—and potentially complicated—features is the mandatory termination date. A MAGA account stops being a MAGA account the day the beneficiary turns age 31. At that point, the entire balance is treated as a withdrawal. This forces the beneficiary to use the funds or pay taxes on the earnings by age 31, preventing the account from becoming a long-term, multi-decade tax shelter. For someone who planned to use the funds for retirement savings, this is a hard stop. For someone who plans to buy a house or finish a degree in their 20s, it works perfectly. This mandatory deadline means beneficiaries need a solid plan for their funds before they hit the big 3-1, or they’ll face a surprise tax bill on the accumulated earnings.