With College Costs Soaring and Pension Plans Declining, the Need for Savings Is Growing; Schumer Unveils Plan to Help 100,000 NY'ers a Year Start Saving From Birth

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With College Costs Soaring and Pension Plans Declining, the Need for Savings Is Growing; Schumer Unveils Plan to Help 100,000 NY'ers a Year Start Saving From Birth

Fewer Employers Offer Pension Plans, College Costs Are Sky High, And Far Too Many Americans Don't Save Enough; Schumer's Plan Would Provide Children With $500 Savings Account At Birth

For Working Families, Feds Would Match Future Contributions Dollar For Dollar, Up To $500 A Year; Gains In The Account Would Grow Tax-Free

Plan Would Provide Thousands Of Dollars To Facilitate Saving For Retirement, A First Home, Or Post-Secondary Education And Provide A Unique New Vehicle For Parents, Families And Private Sources To Invest In Our Children

U.S. Senator Charles E. Schumer today unveiled his plan to help children and teenagers in New York State save money to afford college, purchase a house and retire. Schumer said that with tuition prices hitting record highs, pension plans becoming less common and financial literacy becoming more important in tough economic times, his plan would provide all children born in the United States with a $500 savings account at birth. The contributions to the account would grow tax free, and annual contributions made by the child, his family, or any private source would be matched dollar for dollar, up to $500 a year, for families up to median income. Up to $2,000 annually can be deposited into the account. The money in the account can be used to defray the cost of college, for the purchase of a home, or to retire and would promote savings and financial literacy.

"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 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."

The American Saving for Personal Investment, Retirement, and Education Act (ASPIRE) of 2009 will encourage savings, promote personal fiscal responsibility, and expand individual opportunities by automatically creating a Lifetime Savings Account for all newborn children when their Social Security cards are issued. The money in the account can be used to defray the cost of college, for the purchase of a home, or to retire. An account holder would not be able to access the funds until their 18th birthday. After the account holder turns 18, their account will be governed by rules similar to Roth Individual Retirement Accounts (Roth IRAs). These rules allow for tax-free withdrawals without penalty for select pre-retirement uses including post-secondary education and first-time home purchase. When the accountholder is between 18 and 25, account withdrawals can only be used to defray the cost of college. After the individual turns 25, withdrawals can be used to purchase a home or to supplement other retirement savings.

The act establishes a new and innovative way to allow parents, family members and other private sources to contribute to our children's future. A corporation, for example, could offer to contribute a certain percentage of an employee's salary to his 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.

The ASPIRE Fund will be established within the U.S. Treasury and will be overseen by a Board of Directors. The Board will appoint a Director of the Fund. After the account has been created, the Secretary of the Treasury will transfer $500 into each individual account. This amount will be indexed for inflation. Children born into households making less than the national median income will be eligible for an additional contribution of up to $500 - those that live at 75% of the median income will receive the full $500 bonus, and the bonus phases out evenly until it hits $0 for people who are at the median income or above. At any time after the account is opened, the family may transfer the account to a private sector financial institution.

Children in households that make below 75% of median income can receive a dollar-to-dollar annual match of the first $500 of annual contributions until they turn 18 years old. Total contributions will be capped at $2,000 per year. Before an individual turns 18, a parent or legal guardian will make investment decisions; at age 18, the account hold may begin to make investment decisions and additional contributions can be made following Roth IRA rules. Investment options for ASPIRE accounts will be similar to those for Thrift Savings Plans, such as a government securities fund, fixed income investment fund, and common stock funds.

Schumer noted that though the plan is open people of all incomes, over the course of 18 years 92% of the government contributions will accrue to children of families making below $72,000 a year.

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