Congressman Hinojosa and Stivers Reintroduce the Bipartisan Rays Act to Allow Children a New Avenue for Saving Money for their Future

Press Release

Today-- Congressmen Rubén Hinojosa and Steve Stivers (R) Ohio, reintroduced the Roth Account for Youths Savings or RAYS Act (H.R. 1377) that would make a modification to the earned income rules of existing Roth IRAs by allowing children, who generally lack earned income, to use their parents' earned income limits to make contributions to an account in the minors' name.

"Saving money for the future is always a good lesson to learn by all Americans including children," said U.S. Rep. Hinojosa. "The RAYS Act would allow families to instill the habit of saving for the long-term in America's youngest citizens. Creating ways for young children to begin to save for their future is good for the future of our country."

Currently, the only tax-preferred savings vehicles to save for non-working children are 529 College Savings Plans and Coverdell Education Savings Accounts. Only 3 percent of U.S. families own assets in either of these accounts, showing that current savings vehicles intended for children are failing to promote savings for the vast majority of Americans. A robust research base shows that building savings in childhood is a key contributor to financial security and economic mobility over the life course.

The "Roth at Birth" legislation has evolved over the years. Rep. Hinojosa's bill represents the most advanced version, without the pitfalls of previous versions.

U.S. Rep. Hinojosa added, "With an initial deposit of $500 at birth and a subsequent $250 annual deposit (about $21 per month), a RAY would be worth $131,829 at age 65 (assuming a 5 percent return). If opened at age 25 with the same $500 deposit and $250 annual contribution, the Roth IRA would only be worth $35,229 at age 65."

The funds contributed into these accounts would be accessible throughout life to pay for the following: education, a down payment on a house, financial emergencies, and retirement.

Because they build on a familiar savings vehicle, the Roth IRA, RAYs would be available from existing financial service providers with whom families may already have relationships.

"I am proud to co-lead the RAYS Act, because allowing our nation's youth to begin a ROTH IRA account early in life will help build wealth and have positive effects on Americans financial health," said Stivers. "As a father of two young children, I know the importance of legislation like this, which is why I will continue to promote savings and financial literacy."

As structured in the RAYS Act, these accounts would not create a new tax shelter or drain on the federal budget.

Source