The potential for a Universal Savings Account (USA) is picking up steam as the Tax Cuts and Jobs Act provisions approach their 2025 expiration. Advocates suggest a flexible savings model – akin to health or education savings accounts but without restrictive use criteria – could be revolutionary for financial planning across various life events.
During a Senate Finance Committee hearing in May, experts highlighted the USA’s ability to encourage savings by sheltering income from double taxation, a significant deterrent under the current tax code. This flexibility could particularly benefit lower and middle-income Americans by allowing withdrawal without penalties, making it an attractive option for emergency funds or other vital financial needs.
The discussion brought to light how countries like Canada and the UK have successfully integrated similar accounts, enhancing their national savings rates. In Canada, for instance, more than half of the population utilizes these tax-free savings options, proving particularly popular among those with annual earnings around $37,000.
A report from The Tax Foundation detailed how the USA could function if implemented. Individuals 18 and older could contribute up to $9,100 annually post-tax, with provisions to carry forward unused contributions. These accounts would facilitate tax-free growth and penalty-free withdrawals, functioning similar to a Roth IRA and making them highly versatile for users. Any money taken out would be added back to that year’s potential contribution room and would be eligible for carryover too.
This potential legislation is still in discussion, but it could have a significant impact on individuals as well as the companies where they work. We will keep you up to date as it works its way through Congress. And if you have questions or need guidance for your specific tax situation, don’t hesitate to reach out to us for help.