Overview
Title
To amend the Internal Revenue Code of 1986 to establish universal savings accounts.
ELI5 AI
Imagine there's a special savings piggy bank called a "universal savings account" where people can put up to $10,000 every year, and they don't have to pay most of the usual taxes on this money. However, some people might not be able to use it as much, especially if they live in expensive places or earn a lot of money.
Summary AI
H.R. 9010 proposes an amendment to the Internal Revenue Code of 1986 to create universal savings accounts (USAs) for individuals in the United States. These accounts would be exempt from most taxes and could only be funded with cash contributions up to a limit of $10,000 per year, with adjustments based on income and other factors. Distributions from these accounts would generally not be taxed. The bill includes specific rules about account management, contributions, and what happens to the account upon the death of the account holder.
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AnalysisAI
Summary of the Bill
The proposed legislation, H.R. 9010, aims to amend the Internal Revenue Code of 1986 to create universal savings accounts (USAs). These accounts are designed to offer individuals a tax-exempt method of saving money, with specific terms governing contributions and withdrawals. The bill, introduced in July 2024, proposes that these accounts remain tax-free, excluding any taxes on unrelated business income. Notably, contributions are capped annually, with unique provisions for rollovers, distributions, and conditions upon the account holder's death. The bill is slated to apply to tax years beginning after December 31, 2024.
Significant Issues
One of the foremost issues highlighted in the bill relates to the complexity of the language used, especially in the definition and operationalization of universal savings accounts. This could pose an understanding challenge for the general public who are not versed in tax code terminology.
Additionally, the income phaseout limits set for contribution eligibility might inadvertently disadvantage taxpayers living in high-cost-of-living areas. This stems from the fact that the threshold for participation decreases based on one's modified adjusted gross income, potentially excluding individuals whose incomes are inflated not by wealth but by the cost of residing in expensive regions.
Furthermore, the bill does not address the potential interactions between USAs and existing retirement or savings accounts, leading to possible confusion for individuals planning their finances. On top of this, the absence of explicit penalties for trustees failing to meet reporting obligations could result in lapses in adherence to the reporting requirements, weakening the regulatory framework.
Impact on the Public and Stakeholders
General Public
For the general public, the introduction of universal savings accounts provides a new avenue for growing personal savings tax-free, promoting financial security and self-reliance. However, the intricate language and procedural details might pose a barrier, making it necessary for individuals to seek expert advice to optimize their use of these accounts.
Taxpayers in High-Cost Living Areas
Taxpayers residing in high-cost areas might view the income phaseout provision as inequitable. Although designed to make the distribution of benefits more efficient and targeted, it could inadvertently penalize those earning larger incomes merely to meet higher living expenses, rather than out of economic surplus.
Financial Institutions and Trustees
Financial institutions tasked with managing these accounts as trustees might face new administrative burdens. The need for rigorous reporting and compliance with the account rules could require additional resources and adaptation to meet the legislative requirements. However, the absence of clear penalties for non-compliance might lead to variability in how stringent institutions enforce these rules.
States with Community Property Laws
The bill’s exemption from community property laws could evoke legal complications or dissatisfaction in states where such laws play a significant role in marital asset division. This disparity in how savings are treated might necessitate additional legal clarification or revision to harmonize federal and state regulations.
In conclusion, while this bill proposes to enhance individual savings through tax-free accounts, its ultimate reception and effectiveness will largely depend on addressing the highlighted issues, ensuring the public and stakeholders can navigate its complexities and benefit equitably from its provisions.
Financial Assessment
H.R. 9010 introduces a new type of financial instrument known as universal savings accounts (USAs). The bill proposes several financial guidelines for these accounts, which can greatly impact individuals' savings strategies.
Contribution Limits: Each individual can contribute up to $10,000 per year to a universal savings account. However, this yearly maximum is restricted by the individual's compensation levels, meaning the contribution cannot exceed what the person earns in income. This dual limit ensures that only individuals with sufficient earned income can make the full contribution, which could result in unequal benefits, especially among lower-income earners.
Income Phaseout: The ability to contribute to a USA is further restricted by the contributor's modified adjusted gross income. Specifically, contributions are reduced by $50 for every $1,000 (or fraction thereof) that the taxpayer's income surpasses specific thresholds: $400,000 for joint returns or surviving spouses, $300,000 for heads of household, and $200,000 for other individuals. This income-based phaseout might disproportionately impact individuals in high-cost-of-living areas, where even moderate incomes could surpass these thresholds, leading to fewer benefits from USAs.
No Contributions for Dependents: Individuals who are dependents and have no taxable income for a given year cannot contribute to a USA, setting their contribution limit effectively to zero. This rule restricts account benefits to those with independent income, which could limit savings opportunities for students or young adults living with their parents.
Cost-of-Living Adjustments: The yearly contribution limits are set to increase with inflation after 2025, adjusted according to the cost-of-living index, preserving the future value of contributions. However, adjustments will only be made in increments of $100. This mechanism could help maintain the buying power of account holders' savings over time, though it introduces complexity for account holders trying to plan long-term savings strategies.
The bill does not address how these accounts interact with existing retirement savings vehicles, which raises potential concerns about financial planning confusion. Without clarity, individuals might misunderstand how USAs and traditional retirement accounts coexist or complement each other, which could affect their overall savings decisions.
These financial references and limits are pivotal because they define who can maximize participation in these new accounts and how they impact personal savings strategies. The complexity of these provisions may present challenges for those not fluent in tax code terminology, as noted in the identified issues, potentially complicating effective utilization and compliance.
Issues
The language regarding the 'universal savings account' in Section 2, especially subsections (b) and (c)(2)(B)(i), might be overly complex for those not familiar with tax code terminology, potentially creating barriers to understanding and compliance for the general public.
The phaseout limits based on modified adjusted gross income in Section 2(c)(2)(B) might disproportionately affect taxpayers in high-cost-of-living areas, potentially resulting in unequal benefits among different demographic groups.
Section 2(g) lacks explicit mention of penalties or consequences for trustees who fail to comply with reporting requirements, potentially leading to lapses in accountability.
There is no discussion in Section 2 about how universal savings accounts might interact with or affect existing retirement accounts or other savings vehicles, which could create confusion for those planning their financial futures.
In Section 2(e), the explanation of treatment upon death, particularly differentiating between a spouse, child, or other beneficiaries, could lead to confusion and misinterpretation.
The terms 'readily ascertainable fair market value' and 'identified by the Secretary' in Section 2(b)(2)(B) are ambiguous and may need clearer definitions to ensure proper implementation and understanding.
The section disregards community property laws (Section 2(f)(1)), which might lead to legal challenges or confusion in states where these laws are significant.
Sections
Sections are presented as they are annotated in the original legislative text. Any missing headers, numbers, or non-consecutive order is due to the original text.
1. Short title Read Opens in new tab
Summary AI
The first section of this act specifies that it will be known as the "Universal Savings Account Act of 2024."
2. Universal savings accounts Read Opens in new tab
Summary AI
The section introduces Universal Savings Accounts, which are tax-exempt savings accounts individuals can use for personal savings. Rules include contribution limits, conditions on what type of assets can be held, and what happens to the account upon the holder’s death. It also specifies how excess contributions are taxed and imposes penalties for failing to report these accounts properly. The rules apply to tax years starting after December 31, 2024.
Money References
- — “(A) IN GENERAL.—The aggregate amount of contributions (other than qualified rollover contributions described in subsection (d)) for any taxable year to all universal savings accounts maintained for the benefit of an individual shall not exceed the lesser of— “(i) $10,000, or “(ii) an amount equal to the compensation (within the meaning of section 219) includible in such individual’s gross income for such taxable year.
- “(B) PHASEOUT.— “(i) IN GENERAL.—The amount allowable as a contribution under subparagraph (A)(i) (determined without regard to this subparagraph) shall be reduced by $50 for each $1,000 (or fraction thereof) by which the taxpayer’s modified adjusted gross income exceeds the applicable threshold amount.
- “(ii) APPLICABLE THRESHOLD AMOUNT.—For purposes of this subparagraph, the term ‘applicable threshold amount means’— “(I) $400,000, in the case of a joint return or surviving spouse, “(II) $300,000 in the case of a head of household, or “(III) $200,000 in the case of any other return.
- “(C) NO CONTRIBUTIONS FOR DEPENDENTS.—In the case of an individual who is a dependent of another taxpayer for a taxable year beginning in the calendar year in which such individual’s taxable year begins, the dollar amount under subparagraph (A) for such individual’s taxable year shall be zero.
- “(D) COST-OF-LIVING ADJUSTMENT.—In the case of any taxable year beginning in a calendar year after 2025, the dollar amounts in subparagraphs (A)(i) and (B)(ii) shall 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) for the calendar year, determined by substituting ‘calendar year 2024’ for ‘calendar year 2016’ in subparagraph (A)(ii) thereof. If any amount after adjustment under the preceding sentence is not a multiple of $100, such amount shall be rounded to the next lower multiple of $100.
530U. Universal savings accounts Read Opens in new tab
Summary AI
A universal savings account (USA) is a type of trust in the United States that allows individuals to save money tax-free, as long as certain conditions are met, such as contribution limits. This account is meant for an individual's benefit and has specific rules for contributions, distributions, and what happens to the account when the holder dies.
Money References
- — (A) IN GENERAL.—The aggregate amount of contributions (other than qualified rollover contributions described in subsection (d)) for any taxable year to all universal savings accounts maintained for the benefit of an individual shall not exceed the lesser of— (i) $10,000, or (ii) an amount equal to the compensation (within the meaning of section 219) includible in such individual’s gross income for such taxable year.
- (i) IN GENERAL.—The amount allowable as a contribution under subparagraph (A)(i) (determined without regard to this subparagraph) shall be reduced by $50 for each $1,000 (or fraction thereof) by which the taxpayer’s modified adjusted gross income exceeds the applicable threshold amount.
- (ii) APPLICABLE THRESHOLD AMOUNT.—For purposes of this subparagraph, the term “applicable threshold amount means”— (I) $400,000, in the case of a joint return or surviving spouse, (II) $300,000 in the case of a head of household, or (III) $200,000 in the case of any other return.
- (C) NO CONTRIBUTIONS FOR DEPENDENTS.—In the case of an individual who is a dependent of another taxpayer for a taxable year beginning in the calendar year in which such individual’s taxable year begins, the dollar amount under subparagraph (A) for such individual’s taxable year shall be zero.
- (D) COST-OF-LIVING ADJUSTMENT.—In the case of any taxable year beginning in a calendar year after 2025, the dollar amounts in subparagraphs (A)(i) and (B)(ii) shall 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) for the calendar year, determined by substituting “calendar year 2024” for “calendar year 2016” in subparagraph (A)(ii) thereof. If any amount after adjustment under the preceding sentence is not a multiple of $100, such amount shall be rounded to the next lower multiple of $100.