“401Kids makes it easier for parents to plan for the future and for our children to achieve the American dream,” Shaw said in an announcement on his Web site. Eighty-four percent of Americans support the creation of 401 Kids tax-free savings accounts for their kids, according to the announcement.
A 401Kids Account is a savings account that parents can establish in a child’s name at birth. Up to $2,000 after-tax can be contributed to the account per year. Interest accumulates in the account tax-free and withdrawals for approved purposes are also tax-free. Money in the account can be used for higher education expenses, a first-time home purchase, or can be rolled into a Roth IRA for retirement savings.
The bill would build on the concept of Section 530 accounts by expanding the qualified expenses of the accounts to include first-time home purchases and rollovers to Roth IRAs along with education expenses. The measure would rename Section 530 accounts to 401Kids accounts to associate it with the 401(k), a more well-known savings vehicle, and increase the likelihood of participation.
In addition to the establishment of the 401Kids account, HR 5314 extends to 2015 provisions for Section 529 college savings plans that are set to expire in 2010.