Personal Finance

New GOP plan pushes savings accounts that come with tax break

Key Points
  • Universal Savings Accounts would be structured similarly to IRAs, although they would come with no early-withdrawal penalties or restrictions on how the money could be spent.
  • The idea is to give people a tax-advantaged way to save for future expenses outside of retirement.

Saving for, well, just about anything could come with a tax break if House Republicans get their way.

GOP lawmakers are supporting the creation of Universal Savings Accounts as part of their so-called Tax Reform 2.0 effort, according to a two-page overview released by the House Ways and Means Committee on Tuesday. These accounts, which Congress has explored in past legislation, would be tax-advantaged ways to save for future expenses outside of retirement.

The idea is to give people a way to save tax-advantaged money for the long-term without restrictions on when (or why) they can make use it. In other words, there would be no early-withdrawal penalties, which come with retirement accounts such as 401(k) plans and individual retirement accounts.

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It’s uncertain whether contributions would be tax-free, as is the case with traditional IRAs and 401(k) plans, or if money contributed would be taxed and withdrawals — including investment gains — would be untaxed, as is the case with Roth IRAs. The House Ways and Means Committee did not respond to a request for more details about the accounts.

Additionally, there would likely be an annual limit on the amount that could be contributed. A 2017 bill that aimed to create these accounts put the limit at $5,500 yearly.

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The GOP’s newest stab at altering the U.S. tax code comes just months after sweeping changes took effect Jan. 1 under the Tax Cuts and Jobs Act.

Among other changes, the new proposal seeks to make the already-implemented tax cuts for individual taxpayers and so-called pass-through business permanent. As it stands, they are set to expire at the end of 2025.

House Republicans have indicated a vote on the new tax legislation will come in September.

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