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Informed by CSD research, 401Kids Act introduced in U.S. Senate

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The legislation would create asset-building accounts for all children in the United States.

On Wednesday, January 31, U.S. Sen. Bob Casey of Pennsylvania introduced federal legislation to create a national children’s account policy. The 401Kids Act is designed to empower all children, and particularly children from disadvantaged households, by providing a means for them to accumulate assets for developmental priorities like higher education.

The legislation draws on rigorous research from the Center for Social Development (CSD), particularly findings from the long-running SEED for Oklahoma Kids experiment. Evidence shared by CSD researchers and Senior Policy Advisor Ray Boshara informed provisions of the bill, especially through Boshara’s concurrent role as legislative fellow in the office of Sen. Casey.

“A lack of income means you can’t get by, but a lack of wealth means you can’t get ahead,” Casey said in a press release at the bill’s introduction. “As American families grapple with rising costs, they deserve a way to save not just for their future, but for their children’s future. My 401Kids Savings Act would provide every child in this Nation with the cushion they need to take risks and pursue opportunities to create generational wealth.”

“It’s hard to climb the economic ladder when you’re buried under student loan debt or held down by the rising cost of housing,” said Sen. Ron Wyden in the press release. “Senator Casey’s bill is about restoring economic opportunity for young people with a smart approach that will give kids a brighter future, put families on stronger financial footing and pay dividends for our economy nationwide.”

The bill was referred to the Senate Finance Committee, which Wyden chairs.

“Senator Casey is greatly concerned about an ‘American Dream in Reverse’ – that younger generations have less wealth than their parents did at the same age, something especially true for younger persons of color and those without college degrees. 401Kids aims to address that by renewing opportunity for each generation, giving them a fair shot at economic success,” said Boshara. “As a legislative fellow in the senator’s office, I was pleased and honored to engage a wide range of stakeholders to make sure this bill reflects the field’s best and latest thinking. CSD’s research over many decades was foundational to the vision and development of the bill.”

A policy for every child

Under the legislation, every child under the age of 18 would automatically receive a 401Kids Savings Account in their state of residence, and state treasurers would be authorized to establish the accounts through an omnibus structure within state 529 college savings plans. If a state chose not to exercise that authority, children residing there would receive an account through the U.S. Treasury.

The bill would permit individuals to contribute up to $2,500 per year into 401Kids Accounts and provide annual federal deposits into the accounts of disadvantaged children. Youth from single-parent households with a modified adjusted gross income of $75,000 of less (or $150,000 or less for married couples) would receive annual deposits of $500 from the federal government. An additional $250 deposit would be made annually on behalf of children from households eligible to receive the Earned Income Tax Credit (EITC), regardless of whether the household claimed the credit. States could also make 401Kids deposits. Because the assets would be held within state 529 plans, they would grow with investment earnings.

Account beneficiaries and their parents could not access the assets before age 18. From that point, they could use accumulated funds to obtain higher education or training, purchase of a home, or start a small business. They could also rollover the funds into an ABLE Account or Roth IRA. When the beneficiaries reach age 59 and a half, they could withdraw any remaining 401Kids funds without tax or penalty for retirement security.

To protect the most vulnerable households from losing access to needed supports, 401Kids assets under $100,000 would be exempt from federal and state means tests used to determine eligibility for such public services such as Medicaid.

The 401Kids policy also would encourage family saving, offering a dollar-for-dollar federal match, up to $250 per year, for deposits made on behalf of children from EITC-eligible households. Those households could receive up to $1,000 a year in federal deposits.

In addition, contributions would be accepted from employers, nonprofits, philanthropies, and other sources. Employers, for example, could contribute directly on behalf of their employees’ children, and community foundations on behalf of each child attending a given school.

“Our evidence suggests that legislation like the 401Kids bill could open doors of opportunity for every child in the United States,” said Michael Sherraden, the George Warren Brown Distinguished University Professor at Washington University in St. Louis and the founding director of CSD.

“This bill creates a national structure for building assets that families can use to invest in their children’s future,” Sherraden added. “Once that structure is in place, it can broaden inclusion in countless ways.”

A proposal informed by rigorously derived evidence

Casey’s proposal evolved through consultations with experts on children’s account policies and programs. At CSD, Sherraden, Policy Director Margaret Clancy, and Faculty Director Jin Huang, and Boshara shared research on Child Development Accounts (CDAs) and insights from policy implementation. Their policy guidance informed the contours of the bill.

First proposed by Sherraden in 1991, CDAs are inclusive asset-building accounts designed to provide a financial foundation for lifelong development. Sherraden’s proposal detailed a universal policy system with automatic enrollment for every child at birth, a substantial initial deposit, and additional deposits for disadvantaged children. Funded through public and private sources, the accounts would grow with investment returns until accessed for higher education or other developmental priorities.

CDAs reflect CSD’s long-term vision of transforming 529s into an inclusive, progressively funded, lifelong platform for all Americans to build wealth.

SEED for Oklahoma Kids, CSD’s long-running test of CDA policy in the Sooner State, has shown that this policy model can be scaled to serve the full population of children, delivering financial and nonfinancial benefits, some of which are greater for disadvantaged children. The research results have informed adoption of CDA policies in seven U.S. states and several international jurisdictions. The most recent national policy, in Kazakhstan, launched on January 1 of this year.

The research also prompted Clancy and CSD Senior Scholar Sondra Beverly to specify ten key design elements for CDA policy. The 401Kids bill includes nine of those ten elements.

“The policy process is always give-and-take,” said Sherraden. “Our job as researchers is to provide the evidence toward effective design. Nine out of ten policy features is like batting .900.”

The policy’s potential benefits

The 401Kids Accounts could have implications for society as a whole and for children from low-resource families.

An analysis by Jose Diaz of the Constellation Fund showed that every dollar invested in 401Kids Accounts would generate $2.61 in benefits to society. The benefits, Diaz noted, would come from increased “increased income, improved health, additional tax revenues, and savings to other government sectors.”

Evidence from Wave 2 of the SEED OK experiment also suggests that such a policy has positive impacts on parental educational expectations, maternal depression. positive parenting, and children’s social-emotional development in early childhood.

In addition, the accounts may narrow persistent gaps between races in educational attainment and wealth. Youth in the SEED OK experiment have not reached the age for higher education, but a recent study found that 86 percent of surveyed SEED OK parents deemed the CDA’s features important or very important for their child’s postsecondary educational attainment. Analyses by SEED OK researchers have shown that all racial groups build assets when given a CDA structure and support.

The 401Kids policy’s potential led to endorsements from numerous organizations, including the National Association of Social Workers, the Grand Challenges for Social Work initiative, the Network for the Grand Challenge to Reduce Extreme Economic Inequality, and the Alfond Scholarship Foundation, which operates the My Alfond Grant CDA in Maine.

An opportunity to “get ahead”

For 401Kids beneficiaries, the policy could deliver tangible resources and more.

Estimates by the Joint Economic Committee of the U.S. Congress speak to the policy’s effect on the assets of beneficiaries. If the child of an EITC-eligible single parent with $40,000 in adjusted gross income received the 401Kids deposits from birth, the child’s account could have over $53,000 by age 18.

That sum would fully cover the average cost of tuition and fees at a four-year, in-state, public college or university in 2023–2024. The College Board estimates that cost at $11,260.

The accumulated assets could change lives and open closed doors.

“Our research from the SEED OK experiment indicates that CDA policy has the potential to change the landscape of opportunity in America, and we tested many of the design features that were included in the 401Kids proposal,” said CSD Faculty Director Huang, professor in the Saint Louis University School of Social Work and research professor in the Brown School.

“As children grow into young adults, these accounts will grow with them, enabling even those from the most disadvantaged backgrounds to invest in education, purchase a home or launch a small business,” Huang added. “This universal and progressive policy structure is important for promoting financial inclusion and addressing economic inequality, especially for racial minorities. For all of these reasons, a policy modeled on the SEED OK CDA seems a wise investment for the nation.”

The 401Kids Savings Act is S. 3716 and H.R. 7161.