Description of Bill's Features

• The ASPIRE Act will encourage savings, foster the growth of personal financial assets, and encourage financial literacy by establishing KIDS accounts for every newborn child.
  
  
• Each newborn issued a social security number will receive a KIDS account with a government financed balance of $500.
  
  
• The funds will be invested in private sector assets through a range of accounts similar to those offered to federal employees under the Thrift Savings Plan. A new agency would be established within the Treasury Department to administer the account. This agency will have powers and responsibilities similar to those given to the TSP.
  
  
• Children from families with household incomes under the national median will receive an additional government contribution of up to $500. This amount will be phased out between 50% and 100% of the median income.
  
  
• All families will have the opportunity to supplement the original balance with after-tax contributions of up to $1,000 per year.
  
  
• Certain families, those under the national median for household income, will receive a matching deposit from the federal government of the first $500 of their private contributions.
  
  
• Personal contributions are made from after-tax earnings and account withdrawals for "qualified distributions" are also tax free.
  
  
• Qualified withdrawals can be made to finance a post- secondary education or to facilitate the purchase of a first home, or can be left untouched to grow and supplement other retirement assets.
  
  
• Funds will remain invested within the KIDS Account fund until the child becomes 18. At this point, the assets can be left with the fund or transferred to a private sector financial institution under the same rules as a Roth IRA.
  
  
• Account balances will vary by individual participation rates and eligibility for supplemental and matching contributions, but a typical lower-income family making modest but steady contributions can expect their child's KIDS account to be worth over $20,000 after 18 years.

Benefits of the ASPIRE Act

• Promotes the accumulation of long term financial assets for each newborn child.
  
  
• The bill explicitly calls for the development of financial literacy programs to develop a greater sense of financial responsibility among account beneficiaries.
  
  
• Helps to foster asset building to fund important life activities including post-secondary education and purchase of a first home. Without such a program, these important needs might be left unaddressed or could become a taxpayer responsibility.
  
  
• Promotes individual financial responsibility by teaching children from an early age that modest savings applied with persistence can result in the accumulation of significant financial assets.
  
  
• By limiting qualified withdrawals to a few limited purposes (education, home ownership, retirement), the ASPIRE Act promotes the use of private assets to meet life's financial challenges.
  
  
• The use of a Thrift Savings Plan-like structure within the Department of the Treasury will ensure account holders a choice of investments while providing professional management and preventing unqualified withdrawals.
  
  
• Account holders will be able to transfer the funds in their KIDS account at age 18 to a private sector Roth IRA account allowing a wider range of investment products while maintaining limits on the qualified use of accrued funds.
  
  
• The Roth IRA structure will be used both for the KIDS accounts and private sector accounts to limit unqualified distributions.