H.R. 3407: MAGA Act

This bill, referred to as the "Money Accounts for Growth and Advancement Act" or the "MAGA Act," aims to create a new type of savings account called a MAGA account, which would be exempt from taxation under certain conditions. Here are the main components:

Establishment of MAGA Accounts

• A MAGA account is defined as a trust established in the United States for the sole benefit of an individual, designated as a MAGA account during its creation.
• To create a MAGA account, the individual must provide a social security number for both themselves and the beneficiary.
• Contribution to the account is limited to cash deposits, and cannot exceed $5,000 per taxable year, although this limit could be adjusted for inflation starting in 2026.
• Only cash contributions will be accepted, and rollovers from other MAGA accounts are permitted under specific conditions.

Tax Exemptions and Treatments

• Contributions made to a MAGA account will not be taxed, which allows the funds to grow without tax liability until withdrawn.
• Withdrawals from a MAGA account will not be subject to income tax if allocated towards certain qualified expenses, which include educational expenses, costs associated with small business loans, and first-time home purchases.
• For distributions not used for qualified expenses, any amounts withdrawn will be considered taxable income.
• Distributions from a MAGA account may be subjected to additional tax penalties if the beneficiary is under age 30 and the funds are not utilized correctly.

Qualified Expenses

Qualified expenses include:

• Higher education expenses, as defined in existing tax law.
• Costs associated with pursuing post-secondary credentials.
• Expenses incurred for small businesses or agricultural loans, contingent on their classification as qualified.
• Expenses for purchasing a principal residence for first-time homebuyers.

MAGA Account Contribution Pilot Program

• The bill proposes a pilot program allowing for one-time contributions of $1,000 per eligible child into their MAGA accounts, paid by the Secretary of the Treasury.
• In some cases, the Secretary will establish a MAGA account on behalf of eligible individuals who do not already have one, ensuring they benefit from the program.

Contributions and Reporting Requirements

• Trustees of MAGA accounts will be responsible for reporting contributions, distributions, and account balances to account holders and the IRS as required.
• Legal provisions ensure that trustees maintain compliance and oversee the appropriate management of account investments.

Penalties for Non-Compliance

• Penalties will be imposed for negligent or fraudulent claims regarding MAGA account credits, with fines varying according to severity.
• Failure to provide necessary documentation related to MAGA accounts may also incur penalties.

Effective Dates

The provisions in the MAGA Act would apply to taxable years beginning after December 31, 2024, with certain pilot programs and contributions initiating slightly earlier.

Relevant Companies

• None found