With tuition prices hitting record highs, pension plans becoming less common and financial literacy becoming more important, U.S. Senator Charles Schumer Wednesday unveiled a plan to help children and teens save money to afford college, purchase a house and retire.
The American Saving for Personal Investment, Retirement and Education Act (ASPIRE) of 2009 would create a lifetime savings account for all newborn children when their Social Security cards are issued. An account holder would not be able to access the funds until their eighteenth birthday. After an account holder turns 18, the account would be governed by rules similar to Roth Individual Retirement Accounts. These rules allow for tax-free withdrawals without penalty for select pre-retirement uses, including post-secondary education and first-time home purchase.
After the fund has been created, the Secretary of the Treasury would transfer $500 into each individual account.
Children born into households making less than the national median income would be eligible for an additional contribution of up to $500 — those that live at 75 percent of the median income would receive the full $500 bonus, with the bonus phasing out evenly until it hits $0 for people who are at the median income or above. Children in households that make below 75 percent of median income could receive a dollar-to-dollar annual match of the first $500 of annual contributions until they turn 18. Total contributions would be capped at $2,000 per year.
Before an individual turns 18, a parent or legal guardian would make investment decisions; at age 18, the account holder may begin to make investment decisions and additional contributions can be made following Roth IRA rules. Investment options for APSPIRE accounts would be similar to those for Thrift Savings Plans, such as a government securities fund, fixed income investment fund and common stock funds.
“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, D-N.Y., said. “Providing these lifetime savings accounts will take some of the burden of paying for college off the shoulders of struggling middle class families, make it easier for account holders to buy homes and promote long term savings. Having a savings account will ensure that children have resources to draw on when they turn 18, and will provide them with confidence and increased opportunities.”
During the conference call with reporters, Schumer noted that while an account will be universally accessible to each and every child, the vast majority of the benefits would go to lower and middle class families. Ninety-two percent of the government benefits would go to children of families that make less than $72,000 a year, with 89 percent going to children of families making below the median income.
In Herkimer County, the average number of children born each year is 926. Roughly 549 would be eligible for supplemental benefits. The newborns would have a total of $463,000 in savings at birth. In Fulton County where the average number of children born each year is 681, 424 would be eligible for supplemental benefits. The newborns would have a total of $340,500 in savings at birth. In Montgomery County, the 548 children born each year would have a total of $274,000 in savings at birth, with 311 newborns a year eligible for supplemental funds.
“The act establishes a new and innovative way to allow parents, family members and other private sources to contribute to our children’s future,” Schumer said. “A corporation, for example, could offer to contribute a certain percentage of an employee’s salary to his or her child’s ASPIRE account as a benefit. So instead of contributing to Roth IRA for themselves, a parent may be able to contribute to their child’s ASPIRE account. Additionally, by providing children with a savings account, they themselves are more likely to save for their future.”