Here’s everything you need to know about the Universal Savings Account (USA): What sets it apart from other accounts?

Squirreling away money for emergencies and retirement can be difficult. The tax Foundation says that “current tax-advantaged savings options are overly complex and restrictive.”

In order to help alleviate this situation, Senator Ted Cruz and US Representative Diana Harshbarger have introduced legislation in Congress to create a Universal Savings Account (USA).

Harshbarger calls it a “commonsense” bill that will “empower Americans to take control of their financial futures.” while Cruz says that it is “a straightforward solution” which “will provide families with a way to establish financial security and prosperity.”

What to know about proposed Universal Savings Account

According to the lawmakers, a Universal Savings Account would give “every American a flexible, tax-free way to save, invest, and spend — without government interference or penalties.” The investment vehicle would work somewhat like a Roth IRA except that “withdrawals can be made at any time for any purpose—with no age limits, penalties, or usage restrictions.”

Like a Roth IRA, contributions would be from post-tax income and allowed to grow tax-free. However, the contribution limits would be greater for USAs. Savers would be allowed to begin with an initial contribution of $10,000 versus $7,000 for Roth IRAs in 2025.

After the initial contribution, the limit would be increased by $500 every year until it reaches the $25,000 maximum cap. Also, there would be no contribution limits based on income as there are with Roth IRAs.

Compared to high-yield savings accounts, USAs would offer better net yield. “For instance, a 4 percent return taxed at 22 percent yields just 3.12 percent, whereas the same return in a USA would remain at 4 percent,” a press release from Harshbarger’s office states.

Like with Roth IRAs, saver’s would be able to invest their USA account savings. However, unlike Roth IRAs, you would not be able to invest in life insurance contracts.

The fact that savers would be able to withdraw their money at any time without a penalty should encourage more low-income American households to tuck money away for a rainy day, major expenses or retirement notes the Tax Foundation.

Currently only around 7% households with income under $30,000 own an IRA compared to 54% of households with earnings over $125,000.

Get your game on! Whether you’re into NFL touchdowns, NBA buzzer-beaters, world-class soccer goals, or MLB home runs, our app has it all.

Dive into live coverage, expert insights, breaking news, exclusive videos, and more – plus, stay updated on the latest in current affairs and entertainment. Download now for all-access coverage, right at your fingertips – anytime, anywhere.