New US Plan: Establishing a $1,000 Investment Account for Newborns

Recently, the U.S. government announced a new investment plan aimed at providing financial support for American newborns born between January 1, 2025, and January 1, 2029. The plan will establish a $1,000 investment account for each eligible child.

The main features of this plan include:

1. Automatic Enrollment: Children who meet the criteria will be automatically enrolled in the program upon birth.

2. Source of funds: The initial funds are provided by the U.S. Department of the Treasury, potentially coming from reductions in other government spending programs and revenues from tariffs and other sources.

3. Additional Contributions: Families and third parties may contribute up to $5,000 annually to each child's account.

4. Withdrawal Rules:

   • 18 years old can withdraw 50% account balance
   • You can withdraw the full balance starting from age 25, for specific purposes (such as small business loans and higher education)
   • At the age of 30, you can fully dispose of the entire balance.

5. Tax Policy: This account is a tax-deferred account, as long as the funds are used according to regulations, the account earnings will be taxed at the long-term capital gains tax rate.

6. Abuse Penalty: If funds are used for non-specified purposes, additional taxes and a 10% fine may be imposed.

As a reference, based on historical data, if you had invested $1,000 in a fund tracking the S&P 500 index 18 years ago, the present value, including reinvested dividends, would be approximately $5,590.

Based on the data of 3.6 million births in the United States in 2023, the government will invest about 3.6 billion dollars in this program each year.

However, some financial experts have questioned the plan:

1. The investment incentive mechanism may not be the best choice.

2. Compared to the existing 529 college savings plans, the tax benefits of the new plan are relatively limited.

3. The funding amount is not generous enough. For example, Colorado contributes $100 to each newborn's 529 college savings account, followed by an additional $500 each year for five years, totaling up to a maximum of $2,600.

4. Relying solely on the initial $1,000 may make it difficult to meet significant expenses when the child reaches adulthood in 18 years, such as paying for a down payment or continuing higher education.

Despite these limitations, the program has still garnered support from some businesses. A certain technology company has pledged to provide $1,000 in account funding for the newborns of its employees, matching the funds provided by the government. Other large companies have also expressed their intention to support this program, although specific details have not yet been announced.

This new plan aims to provide a better financial starting point for the next generation in the United States, but its long-term effects and implementation details remain to be further observed and discussed.