S. 1581: Universal Savings Account Act of 2025

This legislation, known as the Universal Savings Account Act of 2025, aims to create a new type of savings account in the United States called a Universal Savings Account (USA). The main features of these accounts include:

Tax Exemption

The bill states that money held in a Universal Savings Account will not be subject to federal income tax. This means that individuals can save more money without the burden of taxes diminishing their savings. However, the accounts will still be subject to certain taxes related to unrelated business income.

Account Structure

A Universal Savings Account is defined as a trust organized in the U.S. that benefits an individual. To qualify as a USA, the account must adhere to specific requirements:

• Contributions to the account must be in cash.
• Annual contributions are capped at a specified limit.
• The trustee managing the account must be a bank or approved financial entity.
• The interest or balance in the account cannot be lost.
• Funds in the account cannot be mixed with other properties except in collective investment funds.
• The account cannot be invested in life insurance contracts.

Contribution Limits

Individuals can contribute up to $10,000 in the first year. For each subsequent year, this amount can increase based on the number of years since 2024 up to a maximum limit of $25,000. Contributions can include adjustments for inflation starting from the calendar year following the establishment of the accounts.

Distribution Rules

When funds are withdrawn from a Universal Savings Account:

• Withdrawals will typically not count as taxable income.
• However, any distributions of income related to excess contributions will be taxed in the year the contributions were made.

Special Cases upon Account Holder's Death

Upon the death of the account holder, the treatment of the account varies:

• If the account holder's spouse inherits the account, they will assume responsibility for it as if they were the original holder.
• In other cases, the account balance will be treated as distributed on the date of the account holder's death, and the account will no longer qualify as a Universal Savings Account.

Qualified Rollovers

The bill also allows for "qualified rollover contributions," which means that individuals can transfer funds from one Universal Savings Account to another without tax penalties, as long as this is done within 60 days of the distribution from the original account.

Reporting Requirements

The trustee of each Universal Savings Account is required to report details about contributions, distributions, and any other matters as mandated by the Secretary of the Treasury.

Taxation on Excess Contributions

There are penalties for contributions that exceed the set limits. The Internal Revenue Code will be amended to include definitions and rules concerning excess contributions specific to Universal Savings Accounts.

Effective Date

The provisions of this act will take effect for taxable years beginning after December 31, 2024.

Relevant Companies

None found