Establishment of child savings account program

(a)

Establishment of program

The Secretary of the Treasury shall, not later than December 31, 2022, establish a permanent program, to be known as the Federal Child Savings Account Program, which meets the requirements of this section to establish and maintain a savings account meeting the requirements of subsection (c) on behalf of eligible individuals.(b)

Program specifications

(1)

In general

(A)

Savings accounts

The Federal Child Savings Account Program established under this section shall—(i)permit the parent or guardian of an eligible individual to establish a savings account which meets the requirements of this subsection and subsection (c) on behalf of the individual;(ii)establish a savings account which meets the requirements of this subsection and subsection (c) on behalf of—(I)eligible individuals who are in foster care, in coordination with the Administration for Children and Families; and(II)other eligible individuals on whose behalf no account has been established by a parent or guardian under clause (i) as of the time the first deposit under paragraph (4)(A) is due to be made on behalf of such individuals,

and notify such individuals of the establishment of such accounts;

(iii)require the assets of each savings account established under the program to be held by the designated custodian;(iv)within the limitations of paragraph (3), permit contributions to be made periodically to such savings accounts by direct deposit through payroll deduction or by electronic means, and by methods that provide access for the unbanked;(v)provide for the annual deposit under paragraph (4) and the matching contributions under paragraph (5) to be made to such savings accounts, if applicable;(vi)as provided in subsection (c), permit distributions and rollovers from such savings accounts upon request of the parent or guardian of the individual on whose behalf the account is established before the individual has attained age 18, or upon request of such individual after such individual has attained age 18;(vii)include procedures to consolidate multiple accounts established for the same individual and return excess contributions on an annual basis, with notice provided to the parent or guardian of the individual (or, if appropriate, to the individual) and a procedure for resolution of disputes; and(viii)ensure that such savings accounts are invested solely in United States Treasury bonds.(B)

Regulations, etc

The Secretary of the Treasury shall have authority to promulgate such regulations, rules, and other guidance as are necessary to implement the Federal Child Savings Account Program, and are consistent with this section and section 529B of the Internal Revenue Code of 1986, including—(i)rules regarding the provision of periodic notices to individuals and parents or guardians of individuals, as appropriate, on whose behalf accounts are established under the program, including information on account balances and activity;(ii)rules regarding beneficiary designation in the case of the death of the individual on whose behalf an account was established; and(iii)coordination rules permitting savings accounts to be established under the Federal Child Savings Account Program in connection with State and local laws that provide contributions to savings accounts for residents.(C)

Pilot program for deposits made with Federal partners

The Secretary of the Treasury may, in fulfillment of subparagraph (A)(iv), establish a pilot program which would allow grocery stores, pharmacies, banks, and other similar businesses to partner with the Federal Government to accept cash deposits from customers and to remit such deposits to the Treasury for payment into savings accounts under the Federal Child Savings Account Program.(2)

No fees

No fees shall be assessed on participants in the Federal Child Savings Account Program.(3)

Limitations

(A)

Contribution minimum

The Secretary of the Treasury may establish minimum amounts for initial and additional contributions to a savings account under the Federal Child Savings Account Program, not to exceed $5.(B)

Contribution limitation

(i)

In general

Contributions to a savings account under the Federal Child Savings Account Program during any taxable year (other than the contribution made under paragraph (4)) shall not be accepted to the extent such contributions exceed $2,500.(ii)

Phaseout

The $2,500 amount under clause (i) shall be reduced (but not below zero) by $125 for each $2,000 (or fraction thereof) by which the taxpayer's modified adjusted gross income for the taxable year exceeds $200,000. (C)

Limitation on participation

Within a reasonable amount of time before the date an eligible individual attains age 17, the designated custodian shall provide notice to the eligible individual and the parent or guardian of the eligible individual that—(i)no deposits under paragraph (4) or (5) will be made for calendar years after the year in which the individual attains age 17;(ii)no further contributions made by any person will be accepted after the date the individual attains age 26; and(iii)the individual (or, as provided, the individual's parent or guardian) may elect to have the account balance rolled over or distributed as provided, and at the time specified, in subsection (c).(4)

Annual deposit

(A)

In general

Within a reasonable amount of time (not to exceed 60 days) after the filing of the return of tax for each taxable year by a taxpayer claiming an eligible individual as a dependent, the Secretary of the Treasury shall deposit $500 into the savings account established for such individual under the Federal Child Savings Account Program.(B)

Phaseout

The $500 amount under subparagraph (A) shall be reduced (but not below zero) by $25 for each $1,000 (or fraction thereof) by which the taxpayer's modified adjusted gross income for the taxable year exceeds $100,000.(C)

Deposit on behalf of children in foster care

At an appropriate time each year as determined by the Secretary of the Treasury in coordination with the Administration for Children and Families, such Secretary shall deposit $500 into the savings account established under such Program for any eligible individual in foster care in any State with respect to whom no deposit was made for such year under subparagraph (A).(5)

Matching contributions

If a credit is allowed under section 32 of the Internal Revenue Code of 1986 to the parent or guardian or an eligible individual for a taxable year, with respect to contributions made by such parent or guardian to the savings account of such eligible individual under the Federal Child Savings Account Program during the succeeding taxable year, the Secretary of the Treasury shall deposit into such savings account an amount equal to so much of such contributions as does not exceed $250. Such deposit shall be made in addition to the deposit under paragraph (4).(6)

Designated custodian

For purposes of this section, the designated custodian is the person designated by the Secretary of the Treasury to act as custodian of the savings accounts established on behalf of participants in the Federal Child Savings Account Program.(7)

State

For purposes of this section, the term State includes the District of Columbia, any possession of the United States, and any Indian tribe (as defined in section 45A(c)(6) of the Internal Revenue Code of 1986).(8)

Deposit of matching contributions into Roth IRA

If a parent or guardian of an eligible individual is eligible to receive any matching contribution under paragraph (5), such parent or guardian may elect either to have such matching contribution paid to the savings account of such eligible individual under the Federal Child Savings Account Program or to a Roth IRA of such parent or guardian. The Secretary of the Treasury shall establish a permanent program that creates and maintains a Roth IRA (within the meaning of section 408A of the Internal Revenue Code) on behalf of a parent or guardian who elects for the matching contribution to be made to his or her Roth IRA and who either affirmatively chooses to participate in the program or does not identify a Roth IRA for receipt of the matching contribution. The permanent program shall provide for investment of account balances solely within United States Treasury bonds and shall not charge any fees to account owners.(9)

Inflation adjustments

(A)

In general

In the case of any calendar year after 2023, the $2,500 amount in paragraph (3)(B), the $500 amount in paragraphs (4)(A), (4)(B), and (4)(C), and the $250 amount in paragraph (5) shall each be increased by an amount equal to—(i)such dollar amount; multiplied by(ii)the cost-of-living adjustment determined under section 1(f)(3) of the Internal Revenue Code of 1986 for the calendar year, determined by substituting calendar year 2022 for calendar year 2016 in subparagraph (A)(ii) thereof.(B)

Rounding

If any dollar amount increased under subparagraph (A) is not a multiple of $5, such dollar amount shall be rounded to the nearest multiple of $5.(10)

Accounts may not be assigned

An account established on behalf of an individual under the Federal Child Savings Account Program may not be pledged or assigned to any other person.(11)

Modified adjusted gross income

For purposes of this subsection, the term modified adjusted gross income means adjusted gross income (as defined in section 62 of the Internal Revenue Code of 1986) increased by—(A)any amount excluded from gross income under section 911 of such Code,(B)any amount of interest received or accrued by the taxpayer during the taxable year which is exempt from tax, and (C)an amount equal to the portion of the taxpayer’s social security benefits (as defined in section 86(d) of such Code) which is not included in gross income under such section 86 for the taxable year. (c)

Distributions from savings account

(1)

In general

After the earlier of—(A)the date the individual on whose behalf the savings account under the Federal Child Savings Account Program was established attains age 26; or(B)the date such individual receives a bachelor's degree or associate's degree, or enlists in active duty military service of the United States,

amounts in such account may be contributed in a direct transfer to a Roth IRA (as defined in section 408A(b) of the Internal Revenue Code of 1986) or a designated Roth account (within the meaning of section 402A of such Code) according to the rules of the Internal Revenue Code of 1986, or distributed to the individual in cash.

(2)

Distributions for higher education expenses

Without regard to the date requirements of paragraph (1), a portion of the amount in a savings account established under the Federal Child Savings Account Program may be distributed in cash to the individual or to the parent or guardian of the individual for the payment of qualified higher education expenses of the individual at an eligible educational institution. The aggregate amount so distributed shall not exceed 50 percent of the amount in such account as of the due date for the first payment of tuition for the enrollment of the individual on whose behalf the account is established as an eligible student at such eligible educational institution.(3)

Contribution to ABLE account

Without regard to the date requirements of paragraph (1), all or a portion of the amount in a savings account established under the Federal Child Savings Account Program may be contributed in a direct transfer to an ABLE account established for the benefit of the individual under section 529A of the Internal Revenue Code of 1986 (if the individual is eligible for purposes of section 529A(e)(1) of such Code).(4)

Definitions

Any term used in this subsection which is also used in section 529 of the Internal Revenue Code of 1986 has the same meaning as when used in such section.(d)

Eligible individual

For purposes of this section, the term eligible individual means a child who has not attained age 18 and is a resident of the United States.(e)

Treatment of accounts under certain Federal programs

(1)

Account funds disregarded for purposes of certain other means-tested Federal programs

Notwithstanding any other provision of Federal law that requires consideration of one or more financial circumstances of an individual, for the purpose of determining eligibility to receive, or the amount of, any assistance or benefit authorized by such provision to be provided to or for the benefit of such individual, any amount (including earnings thereon) in an individual's account established under the Federal Child Savings Account Program, any contributions to such account, and any distribution (or portion thereof) which is exempt from the tax under section 529B(d)(3) of the Internal Revenue Code of 1986 shall be disregarded for such purpose with respect to any period during which such individual maintains, makes contributions to, or receives distributions from such account, except that—(A)a distribution for qualified acquisition costs (within the meaning of section 529B(d)(3)(C)(ii) of such Code) shall not be so disregarded; and(B)any amount (including such earnings) in such account shall be considered a resource of the individual to the extent that such amount exceeds $100,000.(2)

Suspension of SSI benefits during periods of excessive account funds

(A)

In general

The benefits of an individual under the supplemental security income program under title XVI of the Social Security Act shall not be terminated, but shall be suspended, by reason of excess resources of the individual attributable to an amount in the account of the individual established under the Federal Child Savings Account Program not disregarded under paragraph (1).(B)

No impact on Medicaid eligibility

An individual who would be receiving payment of such supplemental security income benefits but for the application of subparagraph (A) shall be treated for purposes of title XIX of the Social Security Act as if the individual continued to be receiving payment of such benefits.(f)

Disclosure of taxpayer information

(1)

In general

Subsection (l) of section 6103 of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:

(23)

Disclosure of return information for purposes of administration of the Federal Child Savings Account Program

The Secretary shall disclose to any officer or employee of the Department of the Treasury, as necessary for the administration of the Federal Child Savings Account Program established under section 2(a) of the Young American Savers Act of 2021, return information relating to taxpayer identity, dependents, adjusted gross income, and whether the taxpayer has claimed the earned income credit under section 32 for the taxable year.

(2)

Prohibition of redisclosure

Paragraph (3) of section 6103(a) of the Internal Revenue Code of 1986 is amended by striking or (21) and inserting (21), or (23).(g)

Child Savings Account Program

Part VIII of subchapter F of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after section 529A the following new section:

529B.

Child Savings Account Program

(a)

General rule

The Federal Child Savings Account Program shall be exempt from taxation under this subtitle.(b)

Federal Child Savings Account Program

For purposes of this title, the term Federal Child Savings Account Program means the program established under section 2(a) of the Young American Savers Act of 2021.(c)

Treatment of contributions and earnings

(1)

In general

No amount shall be includible in gross income of an individual on whose behalf an account is established under the Federal Child Savings Account Program, or of any taxpayer claiming such individual as a dependent, with respect to any earnings under the program.(2)

Governmental and matching contributions

Gross income of an individual on whose behalf an account is established under the Federal Child Savings Account Program, or of any taxpayer claiming such individual as a dependent, shall not include the amount of any deposit made to the individual's account under the program pursuant to section 2(b)(4)(A), 2(b)(4)(C), or 2(b)(5) of the Young American Savers Act of 2021.(d)

Treatment of distributions

(1)

In general

Gross income shall not include any cash distribution from an account under the Federal Child Savings Account Program permitted under section 2(c) of the Young American Savers Act of 2021.(2)

Treatment of rollovers

(A)

Roth IRAs

Any contribution from the Federal Child Savings Account Program to a Roth IRA permitted under section 2(c)(1) of the Young American Savers Act of 2021 shall be treated—(i)as a contribution from another Roth IRA as described in section 408A(e)(1)(A), and(ii)as having been contributed to such Roth IRA in a direct trustee-to-trustee transfer within 60 days of the distribution for purposes of section 408(d)(3).(B)

Designated Roth accounts

Any contribution from the Federal Child Savings Account Program to a designated Roth account permitted under section 2(c)(1) of the Young American Savers Act of 2021 shall be treated—(i)as a contribution from another designated Roth account for purposes of section 402A(c)(3), and(ii)as having been contributed to such designated Roth account in a direct trustee-to-trustee transfer within 60 days of the distribution for purposes of section 402(c).(C)

ABLE accounts

Any contribution from the Federal Child Savings Account Program to an ABLE account permitted under section 2(c)(3) of the Young American Savers Act of 2021 shall be treated—(i)as a contribution from another ABLE account as described in section 529A(c)(1)(C)(i), and(ii)as having been contributed to such ABLE account within 60 days of the distribution for purposes of such section.(3)

Tax on nonqualified use

(A)

In general

The tax imposed by this title for the taxable year shall be increased by an amount equal to 20 percent of the amount of any distribution other than a rollover described in paragraph (2) from an account under the Federal Child Savings Account Program during the taxable year, unless the qualified expenses of the individual on whose behalf the account was established paid or incurred during the taxable year of the distribution are equal to or exceed the amount of such distribution.(B)

Distributions from Roth IRA

If any amount is contributed to a Roth IRA in a rollover distribution from an account under the Federal Child Savings Program as provided in section 2(c)(1) of the Young American Savers Act of 2021, the tax imposed by this title for any taxable year shall be increased by an amount equal to 20 percent of the amount of any distribution from such Roth IRA within the 5-year period beginning on the date of the rollover, to the extent that such distribution from the Roth IRA, when aggregated with all other distributions from such Roth IRA during such 5-year period, does not exceed the amount contributed in such rollover distribution. The preceding sentence shall not apply to the extent the qualified expenses of the individual on whose behalf the account under the Federal Child Savings Account Program was established which are paid or incurred during the taxable year of the distribution from the Roth IRA are equal to or exceed the amount of such distribution.(C)

Qualified expenses

For purposes of subparagraphs (A) and (B), the term qualified expenses means amounts paid or incurred by an individual—(i)as collateral required for a loan provided by the Small Business Administration,(ii)as qualified acquisition costs (as defined in section 72(t)(8)(C)) with respect to a residence intended to be the primary residence of the individual, or(iii)for qualified higher education expenses of the individual at an eligible educational institution. (4)

Definitions

Any term used in this subsection which is also used in section 529 of the Internal Revenue Code of 1986 has the same meaning as when used in such section.

(h)

Clerical amendment

The table of sections for part VIII of subchapter F of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after the item relating to section 529A the following new item:

Sec. 529B. Child Savings Account Program.

(i)

Appropriation

There is hereby appropriated to the Secretary of the Treasury, to remain available until spent without fiscal year limitation—(1)$100,000,000 for technology and technology systems necessary for the implementation and administration of the Federal Child Savings Account Program;(2)$25,000,000 for each fiscal year beginning with fiscal year 2022 for the administration of the Federal Child Savings Account Program; and(3)such sums as are necessary to make contributions to Federal Child Savings Accounts as required under paragraphs (4)(A), (4)(C), and (5) of subsection (c).