Congressional Democrats introduced on Wednesday legislation, the 401Kids Savings Act, that would automatically create tax-advantaged accounts for qualifying children and newborns, designed to save for higher education, starting a business, buying a primary residence or in retirement. The accounts would feature both annual and matching contributions by the federal government.

If passed, the bill would amend Section 529 of the Internal Revenue Code to permit state governments to automatically enroll children into tax-advantaged Child Savings Accounts. It would also direct the Secretary of the Treasury to create a Federal 401Kids Savings Program in 2025 as a backstop for children living in states without a CSA program.

Contributions to these accounts would be capped at $2,500 per year, indexed to inflation. State governments would be able to make contributions to these accounts without limit.

The federal government would automatically contribute $500 per year for children in households with an adjusted gross income of $75,000 or less for individuals and $150,000 or less for those filing jointly, with contributions phased out up to an AGI of $125,000 for individuals and $200,000 for those filing jointly. In households eligible for the earned income tax credit, the federal government would make an additional automatic contribution of $250 and a 100% matching contribution up to $250.

The legislation is sponsored by Senators Bob Casey, D-Pennsylvania; Ron Wyden, D-Oregon; and Chuck Schumer, D-New York. In the House, it is sponsored by Representatives Don Beyer, D-Virginia; Joyce Beatty, D-Ohio; and Suzan DelBene, D-Washington.

Both the federal and state programs would be required to have policies that permit participants to consolidate and transfer amounts between state programs and the federal program. They must also maintain policies that ensure the contributions are “invested in accordance with prudent investment strategies which are in the best interest of eligible individuals.”

Participants could withdraw money from the account starting at age 18 for the purposes of business creation, higher education, job training or the purchase of a primary residence. States would set their own policies for legitimate business creation expenses, but the bill states that withdrawals used for down payments in conjunction with a loan secured by the Small Business Administration would qualify.

Contributions made past the participant’s 18th birthday would count toward their individual retirement account annual limit, and any CSA savings could be rolled into a Roth individual retirement account.

The bill has been referred to the House Committee on Ways and Means and the House Committee on Energy and Commerce for consideration.