American Dream Accounts Act

Summary#

This bill creates a new type of tax-exempt savings trust called an American dream account. The accounts are for the exclusive benefit of an eligible individual (defined in the bill as a citizen). Contributions must be cash and are limited each year: generally $7,500, or $10,000 for beneficiaries who are 35 or older. A lifetime contribution cap of $250,000 applies. Trustees must be banks or other approved fiduciaries; custodial accounts can qualify if they meet the rules. The accounts may not hold life insurance and must keep the beneficiary's interest nonforfeitable.

Qualified first-time homebuyer distributions from these accounts are not included in gross income, subject to rules the bill ties to section 72(t)(8) with a 3-year residence rule and dollar limits. The bill sets a dollar limit of $500,000 for qualified first-time homebuyer distributions (reduced to $250,000 in certain joint-acquisition cases) and allows only one such qualified distribution in a beneficiary's lifetime. If the purchased residence is sold before 3 years, the excluded amount may become taxable in the year of sale unless specified exceptions apply (for example, death or disability).

The bill allows certain rollovers: to another American dream account for the same beneficiary, to an American dream account for a family member of the beneficiary, or to a Roth IRA, subject to timing, trustee-to-trustee transfer, and annual or lifetime limits. Nonqualified distributions that are includible in income generally face an additional 10% tax, with exceptions for death and disability. The trustee must report contributions and distributions to the IRS and beneficiaries. The bill applies to taxable years beginning after December 31, 2026.

What it means for you#

• Only citizens (the bill term is "eligible individual") can be beneficiaries.
• You can contribute cash to an account up to the annual limit ($7,500 or $10,000 if age 35+), until lifetime contributions reach $250,000.
• Money used for a qualified first-time home purchase can be withdrawn tax-free up to the specified dollar limits, subject to the single-lifetime rule and the 3-year residence rule.
• Withdrawals not meeting the qualified criteria are generally taxable and subject to a 10% additional tax unless exceptions apply (death or disability).
• The account must be held by a qualifying trustee (typically a bank) and will have required reporting and annual attestations about other accounts for the same beneficiary.

Expenses#

No publicly available information on budgetary costs or fiscal estimates is included in the bill text.

Proponents' View#

No publicly available information on proponents' statements or legislative intent is included in the bill text or metadata provided.

Opponents' View#

No publicly available information on opponents' statements or critiques is included in the bill text or metadata provided.