Erik Gunn

Bill Gives Every Child a Savings Account

Bipartisan bill creates ‘401Kids’ accounts seeded with $25, managed by state investment board.

By , Wisconsin Examiner - Mar 1st, 2022 03:14 pm
Piggy Bank. Photo by Ken Teegardin from Boulder, Boulder, CC BY-SA 2.0 , via Wikimedia Commons

Piggy Bank. Photo by Ken Teegardin from Boulder, Boulder, (CC BY-SA 2.0), via Wikimedia Commons

A bipartisan proposal that would create a special savings account for every Wisconsin child at birth or adoption will get a public hearing Tuesday in the state Assembly.

The legislation — AB-974/SB-947 — was introduced by Reps. John Macco (R-Ledgeview) and Evan Goyke (D-Milwaukee) and Sen. Janis Ringhand (D-Bayfield). If it is enacted, every child in Wisconsin at birth or adoption would be enrolled in a special savings account, seeded with $25. Families can make deposits so that the account grows.

The legislation calls it a “401Kids” account — evoking self-funded 401-k retirement accounts offered by many employers. Goyke and state Treasurer Sarah Godlewski have been promoting the legislation, including with a video posted in YouTube’s kids channel (where it cannot be saved by viewers) to help popularize the idea.

“401(K)ids gives Wisconsin kids an early start in learning good financial practices and the importance of saving,” wrote Macco, Goyke and Ringhand in a memo seeking cosponsors they circulated in January. “Over time, these accounts will accumulate and improve the financial security of individuals and families, while reducing the need to take on debt and rely on the state for long-term retirement support services.”

The accounts would be established and administered by the state Department of Employee Trust Funds, and their investment would be managed by the State of Wisconsin Investment Board (SWIB), the agency that manages investing for Wisconsin public employees’ retirement accounts.

“Rather than just a savings account that accrues 1 or 2%interest, it actually is invested like a retirement account that can provide 7-8-9% interest,” Godlewski says.

The account would follow a child for life. The legislation prescribes that its use would be limited to education, medical emergencies, a first-time home purchase or retirement.

“It is intended to work as a college savings account, but also with other options,” Goyke says. “While [college is] an important goal for a number of families, it isn’t universally the goal. We want more people saving — a broader, more diverse set of people that can benefit from this.”

The bill has bipartisan support from more than a half-dozen Assembly Republicans who have signed on. Goyke considers its hearing Tuesday before the Assembly Ways and Means Committee, which Macco chairs, an important advance. Most bills introduced in a session never get a hearing. “Big ideas sometimes take a few years to cross the goal line,” Goyke says.

Godlewski says the proposal has already won support from groups ranging from public education advocates and the Boys & Girls Club to the real estate industry and medical professionals.

The proposal grew out of the Retirement Security Task Force that Gov. Tony Evers established in 2019. Creating a state-initiated investment account for every child born in Wisconsin was one of five recommendations in the task force’s final report published in February 2021.

“One of the things that we kept hearing about over and over again is that people wished they would have saved earlier,” says Godlewski, who chaired the task force. She recalled a listening session at which a mother with three children, now in their 30s, lamented that none of them had started to save for retirement.

“We know that about a million Wisconsinites don’t have access to any sort of retirement plan at work,” Godlewski says. “They can’t live off of $1,400 a month once they’re able to qualify for Social Security.”

Without help, as many as 400,000 or more people in their 60s or older could be living in poverty by 2030, according to projections in the task force report based on a 2017 analysis published by the La Follette School of Public Affairs at the University of Wisconsin.

Parents could opt out of the program, but it is set up to be automatic to ensure more people take part. Research on related programs, Godlewski says, shows that automatically enrolling someone with the chance to opt out will drive much higher participation.

“If all we did was send a letter saying, ‘Hey, you should start saving,’ we know that not enough families will take advantage of that,” says Goyke. “So we establish it at birth, and then over time, work to educate the account holders and the families on how they can make further contributions.”

Account holders, their families and outside organizations could all pay into the account on a holder’s behalf so the account could grow.

There have been other, smaller scale projects for universal savings accounts from birth. Rhode Island has a program of 529 college savings accounts that parents can open from the day a child is born, for example. Godlewski and Goyke say one reason the 401Kids proposal is distinctive is its plan to use the state investment board to manage the money.

The board would have a fiduciary duty to maximize the accounts and manage them appropriately.

“Relying on a professional, trusted, well-known entity like SWIB, we can bring this type of savings product to the masses and meet people where they are,” Goyke says. “You ask me how to invest for my retirement, I get kind of nervous. These kinds of financial conversations are hard and scary, and so we bring a lot of stability and certainty through SWIB.”

The investment board’s staff “have been doing this for public employees for a very long time,” Godlewski says. “Public employees will tell you that they are a big fan of SWIB.”

School districts must teach financial literacy under a law enacted in 2017. “It’s hard to learn about these financial terms, when you talk about compound interest or mutual funds or index funds or things like that,” Godlewski says. “These accounts can be the tool that [students] can learn from.”

Another provision of the bill would allow families to request the Wisconsin Department of Revenue to directly deposit some or all of a state income tax refund directly into a child’s 401Kids account. That’s intended to make feeding the account easier, even for people without bank accounts.

“If we can make it really easy to move $100 or $200 at the moment in which a parent has that money, we think it’s a great way to facilitate it,” Goyke says.

“The easier you make it to save, the more people say they will take advantage of this,” he adds. “But you have to break those barriers down. So you don’t need a bank account. You don’t need a credit union account. You can be a cash-in-the-coffee-can person and still have direct access to put money into your kid’s 401Kids account.”

Bill would offer every Wisconsin child a chance to start saving from birth was originally published by the Wisconsin Examiner.

7 thoughts on “Bill Gives Every Child a Savings Account”

  1. TransitRider says:

    How would this interact with the federal income tax? Is there a provision in federal law which would exclude the annual gain from income or would it be treated like a mutual fund (with capital gains reported each year)?

  2. blurondo says:

    “The bill has bipartisan support from more than a half-dozen Assembly Republicans who have signed on.”
    This says more about how good this legislation is than anything else.

  3. Wardt01 says:

    Transit Rider —- there is no IRS provision. The state of Wisconsin can certainly choose not to tax the annual gains, but the IRS will tax these!

    The details provided in this article don’t mention any special tax treatment for the annual gains, for the contributions, or for the withdrawals. Details for any “penalties” if the $ is used to buy an iPhone instead of college/house/retirement aren’t provided either. Lastly there’s no information regarding what happens when a family moves out of Wisconsin in the future.
    —— Therefore I doubt these savings accounts have any tax benefit at all at both the WI and the Federal level. And these politicians using the word “401k” as part of the name is deceiving, and will only cause confusion.

    I’d expect that over 1/2 of the parents will forget to include the minimal amount of interest earned on their tax returns, which will lead to nasty letters & penalties from the IRS & WI DOR. These parents will then have to pay someone way way way more than $25 to help clean up the mess!

    I’d also expect the cost to administer this new plan to be 4x to 5x more than the $25 each child receives….. which means some other WI program to help kids will suffer.

    There’s good intentions with this idea, however in the real world it will end up creating a whole mess of problems for these families.

    Instead of creating an entirely new scheme, a much simpler & likely better idea would be to simply establish a 529 account w $25 for each kid.

    I’m all for helping the kids getting a good start for saving $, but this idea is essentially politicians voting for sunshine, puppies, and happiness…..

  4. Wardt01 says:

    … just read through some of the details on the legislation….

    highlights of transcript from Tuesday March 1st hearing to the Ways & Means Committee

    Department of Employee Trust Funds
    A. John Voelker

    “The Bill draft has no language that would confer any tax advantages to the contributions and interest earnings made under the 401 Kids savings program.

    Because the 401 Kids savings program does
    not come under any federal tax provisions that allow deferral of taxes or other tax-
    favored status, there would be yearly impacts on account owners.

    The initial $25 used to establish accounts would be taxable income (not interest income) to the adult account owners, jointly, for the year the account is established.

    As structured, the inability to defer taxes on interest earned by 401 Kids savings accounts, and inability to contribute to accounts with pre-tax income, coupled with the burden on account owners to pay account fees and annual taxes on interest earnings, etc., could create insurmountable difficulties in promoting/marketing the program as a viable alternative to existing tax-favored savings programs, such as the 529 program.”

  5. NieWiederKrieg says:

    Here’s a better idea…

    #1 – The U.S. government should stop spending $2 trillion taxpayer dollars every year to kill millions of men, women, and children in never ending wars around the world.

    #2 – Take those $2 trillion dollars and strengthen Social Security and Medicare.

    #3 – Create a single payer health care system for Americans.

    #4 – Eliminate health insurance companies from our health care system. They add 65%-70% to the cost of our health care without adding a single benefit to our health. That will save another $1 trillion taxpayer dollars.

    #5 – Our elected leaders are too corrupt and will never do #1, #2, #3, or #4.

  6. Wardt01 says:

    NieWiederKrieg – this article was about the state of Wisconsin establishing a new state level savings account scheme. you’re unclear about how your concerns about war & health insurance are related to it, and providing some additional info might help interested readers understand the connection.

  7. NieWiederKrieg says:

    @Wardt01 – If insurance companies were eliminated from our health care system, Wisconsin parents could easily add $5,000 every year to their kid’s savings accounts… and it wouldn’t cost Wisconsin taxpayers a single penny.

    The Federal government could easily add another $5,000 into every Wisconsin kid’s savings account every year if they stopped dropping bombs on women and children in Syria, Iraq, Afghanistan, Lebanon, Palestine, Yemen, Somalia, and Libya.

    Add another $1,000 into every Wisconsin kid’s savings account if we stop sending billions of dollars and weapons to the right wing dictatorships we recently installed in Egypt, Equador, Columbia, Ukraine, Bolivia, Honduras, Guatemala, Haiti, and Brazil.

    And add another $1,000 to every Wisconsin kid’s savings account if we stop spending billions of dollars every year to protect the trillionaire Royal families in Saudi Arabia, Kuwait, Qatar, and the United Arab Emirates.

    Please don’t get me started on the $100 billion dollars in cash, military weapons, and military support we give to Israel every year. (That would add another $1,500 to every Wisconsin kid’s savings account.)

Leave a Reply

You must be an Urban Milwaukee member to leave a comment. Membership, which includes a host of perks, including an ad-free website, tickets to marquee events like Summerfest, the Wisconsin State Fair and the Florentine Opera, a better photo browser and access to members-only, behind-the-scenes tours, starts at $9/month. Learn more.

Join now and cancel anytime.

If you are an existing member, sign-in to leave a comment.

Have questions? Need to report an error? Contact Us