Universal savings accounts, or USAs, are tax-free investment vehicles that have fewer limits and restrictions than other traditional savings methods. For example, people could withdraw funds whenever they pleased, for whatever purpose they needed them, without penalty. That differs from current savings offerings, which penalize withdrawals unless they are taken at specific ages and/or put toward qualifying expenses.
There have been several types of USAs proposed by lawmakers in recent years. A senior official from the Trump administration told FOX Business in February, for example, that the accounts could combine and simplify all existing savings accounts that give tax breaks like 401(k)s and IRAs.
The accounts would be available to everyone 18 and over and instead of being linked to a specific employer or workplace, and they would travel with the individual.
The general idea is that earnings on after-tax contributions can grow tax-free. The investments would earn compound interest.
Like other tax break savings accounts, there would likely be a cap on annual contributions.
Universal savings accounts were part of the administration’s proposed ideas for a Tax Cuts 2.0 package. Those talks appear to have at least temporarily been put on hold as the United States battles back from the coronavirus pandemic.
The Senate’s Joint Economic Committee wrote last month that the plans could boost savings among lower-income and working-class Americans because they are less restricted and have fewer rules than accounts like health savings accounts and 529s, which are used for education expenses.
Canada implemented a universal savings account policy in 2009. In those accounts, any amount contributed and income earned on investments is tax-free at the time of withdrawal. The accounts are open to adults as long as they have valid social insurance numbers.
The United Kingdom also offers residents a USA option.