MW $1,000 MAGA accounts won't actually make most American kids richer, experts say

By Venessa Wong

Families would be allowed to add up to $5,000 a year to children's investment accounts proposed in the Republicans' spending and tax bill

A proposed investment account for American children in the massive spending and tax bill proposed by House Republicans would do little to meaningfully reduce the financial pressures that parents face today, economists and family advocates across the political spectrum told MarketWatch.

In addition to a $500 increase in the child tax credit - which is less than what Vice President J.D. Vance proposed on the campaign trail - the bill proposes a pilot program to create a so-called "Money Account for Growth and Advancement," or "MAGA" account, for every child who is a U.S. citizen born after Dec. 31, 2024 and before Jan. 1, 2029. The accounts would be funded with $1,000 of taxpayer money that a family would invest in stocks. The money would be withdrawable from the account only after the child reaches the age of 18.

The idea for government-funded children's accounts was proposed by hedge-fund founder Brad Gerstner, chief executive of Altimeter Capital Management, to Sen. Ted Cruz last April, Cruz told CNBC on Tuesday.

Cruz, a Republican from Texas, later introduced the Invest America Act, which "establishes a private tax-advantaged account with a $1,000 seed investment from the federal government for every American child at birth." That legislation was adjusted and worked into the current spending and tax bill as MAGA accounts.

Cruz said in a statement that Invest America accounts would improve financial security, as "every child in America will have private investment accounts that will compound over their lives, enhancing the prosperity and economic participation of the vast majority of Americans." Gerstner, who has said that day trading helped him pay for law school, has previously said such accounts would give all Americans access to the gains of the U.S. stock market, allowing everyone to build wealth. Cruz and Gerstner did not respond to requests for comment.

Aside from the initial $1,000 investment from the government, families would be allowed to add up to $5,000 a year (indexed for inflation) to the MAGA account, which would be invested in an index fund tracking U.S. equities, the bill states. Investing just $1,000 in an account for 18 years would grow the money to roughly $5,000, assuming a 10% annual return.

As the bill is written now, the tax advantages of MAGA accounts would be limited compared to 401(k) and even 529 accounts. The funds would not be accessible until the child reaches age 18, and would then be taxed as capital gains when used for education, buying a home or starting a business. When used for other purposes before the age of 30, withdrawals would be subject to income tax, plus 10%. The funds would be paid out to the account holder when they turn 31.

"It does not look like the text provides for any tax-free distributions from the account," Erica York, an economist and vice president of federal tax policy at the Tax Foundation, a center-right tax policy group, told MarketWatch. MAGA accounts "seem less generous than something like an education savings account because there is no deduction upfront."

American parents are under increasing financial pressure as the cost of basic necessities like housing and childcare rise faster than overall inflation. Many now stand to lose healthcare coverage as Republican lawmakers also propose massive cuts to Medicaid that would lead to an estimated 7.6 million Americans going uninsured, according to the Congressional Budget Office.

Family researchers are skeptical about the potential of the MAGA accounts to provide necessary financial support to families. These children's investment accounts, which cannot be accessed for years, "don't give families the immediate financial assistance or security that they need right now to have the confidence either to have kids or to raise the kids that they're now raising," Brad Wilcox, director of the Get Married Initiative at the Institute of Family Studies, a center-right think tank, told MarketWatch. "We don't support this particular approach because it's kicking the can down the road when it comes to helping families confront the real challenges they're facing at this particular moment."

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Parents need "simplicity and choice," said Timothy Carney, senior fellow at the American Enterprise Institute, a right-leaning think tank. "If Congress wants to give babies $1,000 at birth, they should instead create a Baby Bonus for all parents, which the parents could put straight into a 529, or spend on current costs."

There's nothing wrong with trying to help young adults pay for college or buy a home, said Patrick Brown, a fellow at the right-leaning Ethics and Public Policy Center, "but that's not the same as a tax code focused on improving the daily lives of American parents, whose worries about the cost of diapers and childcare and groceries are seen in our falling fertility rates." Enhancing the child tax credit "is a much better way to go about that goal, as would an upfront cash benefit to new parents," he said.

Proposals for similar accounts have long been floated by Democrats. In 2023, Democratic Sen. Cory Booker and Rep. Ayanna Pressley proposed federally-funded baby bonds that could be accessed at age 18 for homeownership and education as a way to narrow the racial wealth gap. Under this plan, children would also receive $1,000 in an account managed by the Treasury Department that would earn about 3% annually. But unlike MAGA accounts, they would receive additional deposits of up to $2,000 each year from the government, depending on family income.

Darrick Hamilton, chief economist at AFL-CIO and the founding director of the Institute on Race, Power and Political Economy at The New School, was an architect of the baby bonds proposal. He told MarketWatch that in order to narrow inequality, it is critical for any accounts to be funded progressively so that low-wealth or lowest-income families receive larger contributions. A one-time deposit of $1,000 from the federal government would not be enough "to redress the gross inequities around wealth that we experience in our country," he said, particularly when many low-income families would not be able to afford to make additional contributions through the life of the child.

Hamilton said the MAGA accounts seem more akin to 529s than the Democrats' proposed baby bonds, and that they would likely inflate asset prices and be "inequality enhancing." He called MAGA accounts "a distraction" from the tax cuts in the bill that he said will largely benefit the wealthy. He also noted that the bill would create a "surge of resources" from the government to the financial sector at a time when consumer-protection agencies are being dismantled.

Kristin Rowe-Finkbeiner, executive director of MomsRising, a group that endorsed Kamala Harris' run for president, said "Parents need access to policies that allow us to build good lives for our families, to raise our kids and to contribute to our communities." That means paid family medical leave, paid sick days, affordable childcare and access to affordable healthcare.

Like others who support a larger child tax credit, she added that when that credit was temporarily expanded during the pandemic, it lifted 2.1 million children out of poverty, and said it "needs to be reinstated."

Rowe-Finkbeiner called the MAGA accounts a "publicity stunt" designed "to take the attention away from the very real, deep and big cuts to the programs that allow families to thrive that Donald Trump and Republican leaders are [pursuing] this very moment."

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-Venessa Wong

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May 13, 2025 18:05 ET (22:05 GMT)

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