Sen. Charles Schumer is proposing a federally subsidized savings plan that would give every newborn a $500 tax-free savings account and annual matching contributions for those from low-income families.
The plan, which has been proposed in Congress several times since 2004, is designed to promote financial literacy and encourage long-term savings for big-ticket expenses such as college or a first home, Schumer said of the latest version of the American Saving for Personal Investment, Retirement and Education Act.
"Middle class people are really hurting right now," Schumer (D-N.Y.) said Wednesday. "At a time of record college prices and financial uncertainty, providing seed money so our children start to save early is more important than ever."
Schumer, who co-sponsored similar legislation in 2006, plans to reintroduce the measure next week. There is no House version yet.
In Long Island, the program would provide accounts for an estimated 29,000 babies born each year, including nearly 8,000 that would qualify for matching funds, according to figures provided by Schumer's office. In New York City, accounts would be opened for more than 111,000 children annually.
Estimated to cost about $4 billion annually, the program would provide every newborn with a $500 savings account kept in a fund established by the U.S. Treasury and overseen by a board of directors. Contributions of up to $2,000 annually would be permitted, tax-free. The federal government will match any deposits, up to $500 each year, for children whose families earn less than 75 percent of the national median income, which is $50,000 a year.
Between the ages of 18 and 25, the program would permit tax-free withdrawals without penalty for college or other postsecondary education. After age 25, the accounts can be used for a home purchase or be rolled over into retirement savings.
"Having a savings account will ensure that children have resources to draw on when they turn 18," Schumer said, "and will provide them with confidence and increased opportunities."