Republican Tax Bill Expands 529s and HSAs, Limits Changes to Retirement

House Republicans’ sweeping 389-page tax bill, unveiled Monday, makes few direct references to retirement but proposes expanding ABLE, college savings and health savings accounts, introduces new investment accounts and adds tax deductions for seniors.

Overall, the bill would reduce federal revenues by more than $4.9 trillion over 10 years, according to an estimate of its impact prepared by Congress’s Joint Committee on Taxation. The reduction in revenue is intended to be balanced out by President Donald Trump’s efforts to reduce the size of the federal government. The final section of the bill would authorize a $4 trillion increase in the country’s debt ceiling.

The House Committee on Ways and Means advanced the legislation Wednesday morning in a party-line vote. 

The House Committee on Energy and Commerce and House Committee on Agriculture still need to advance their portions of the bill, and Republicans are still debating portions of the package, which will more than likely receive universal opposition from Democrats. 

For example, Senator Josh Hawley, R-Missouri, wrote a column published in the New York Times on Monday, urging his party to not make cuts to Medicaid, which is widely expected to occur, since Republicans will need to raise significant revenue to offset their sweeping tax cuts and have signaled a refusal to cut Social Security.

In fact, House Republicans mostly eschewed altering retirement entirely in the bill.

What’s Included

However, the legislation does include expanding Achieving a Better Life Experience accounts by extending the ability to make increased contributions to the accounts, which would enable them to benefit people who are blinded or disabled before age 46, up from the current age limit of 26.

It would also allow tax-exempt distributions from 529 savings plans to be used for higher education expenses, including “qualified postsecondary credentialing expenses” in connection with “recognized postsecondary credential programs” and “recognized postsecondary credentials.”

The Joint Committee on Taxation estimated that the expansion of the 529 savings plans would cost a combined $145 million over the next decade.

The bill would also repeal section 103(e) of the SECURE 2.0 Act of 2022, that would have created a modified Saver’s Credit, that would have provided a direct government matching contribution to an eligible taxpayer’s individual retirement account or retirement plan. The House bill’s repeal would be effective for tax years after December 2025, which is before the provision in SECURE 2.0 would have been effective.

The proposal also expands health savings accounts by allowing working seniors on Medicare hospital insurance to contribute to HSAs, permitting the use of HSAs alongside direct primary care arrangements and certain bronze and catastrophic insurance plans from the health care exchanges, and enabling individuals to use HSA funds for fitness expenses.

The bill would allow both spouses to make catch-up contributions to a single HSA, and would allow flexible spending accounts and health reimbursement arrangements to be converted into HSAs, and would permit retroactive reimbursement for medical expenses incurred up to 60 days before an HSA is established.

The provisions would also allow individuals who make less than $75,000 per year to contribute an additional $4,300 yearly into their HSA, indexed for inflation. For families, the provision allows households making up to $150,000 per year to contribute an additional $8,550.

The additional amounts are phased out for individuals making $100,000 annually and families who make $200,000 yearly.

Together the HSA-related provisions would cost $15.8 billion over 10 years.

The bill would also create new tax-exempt investment accounts meant to benefit children, called money accounts for growth and advancement, or “MAGA” accounts, a clear reference to Trump’s Make America Great Again slogan.

The accounts would allow $5,000 in contributions per year, which beneficiaries could later use to purchase homes, start small businesses or pay educational expenses. The accounts can be created for children born before January 1, 2024 who are younger than 8 years old and must be linked to the Social Security numbers of both the beneficiary and at least one parent.

The bill would also create a pilot program to allow one-time $1,000 government payments into accounts for U.S. citizens born from 2025 through 2028. To receive the government payments, both parents must provide their Social Security numbers and must be considered work eligible.

What’s Not

Notably, the bill does not include Trump’s campaign pledge to end taxes on Social Security benefits, since it was not eligible to be included in the reconciliation bill.

Instead, the proposal includes somewhat of a temporary, work-around solution: It includes a tax deduction for Americans age 65 or older of $4,000 per eligible filer if their gross income is $75,000 or lower if single or $150,000 for married couples filing jointly. The deduction would be allowed for tax years 2025 through 2028 and is available to both itemizers and nonitemizers.