Shaw Testifies on Kids Savings Bill at W&M Panel Hearing

If enacted, H.R. 5314 would enable accounts to be established at a child's birth. Each year up to $2000 could be contributed to each beneficiary under the age of 18. The contributions would be after taxes, but money would be allowed to grow tax free, enabling each child to truly take advantage of the tremendous benefits of compounding interest.

When it comes time for the child to attend college, distributions for these expenses would also be tax free. If the child chooses not to attend college, or if that child is able to pay for college through scholarships, grants or other means, the money could be used to purchase a first home. Finally, the child could choose to roll the money into a Roth IRA or another family member's 401 Kids account.

To accomplish these goals H.R. 5314 works with an existing savings vehicle currently available through Section 530 of the tax code. By expanding upon an existing savings vehicle, we resist the urge that we, as members of Congress, often have to further complicate the tax code.

Finally, H.R 5314 would rename these accounts to "401 Kids Accounts." In doing so, we associate them with the 401(k), a method of savings with which Americans have become very familiar and comfortable. Because of this, we will increase the likelihood of participation, and start more people along the path of long term savings.

Prior to the 109th Congress, I served for six years as the Chairman of the Ways and Means Subcommittee on Social Security. In that time, the subcommittee heard time and again of the need for Americans to save for their own retirement. Because of this, I am particularly pleased with the prospect of people being encouraged to utilize money from these accounts for their retirement.

When I introduced this legislation the federal tax preferences enjoyed by "Section 529 Accounts," which have become a very popular method of saving for college in states across the country, were set to expire in 2011. Because of that, I also included an extension of this program in H.R. 5314. As you all know, since that time a permanent extension was included in the Pension Protection Act that was signed into law by President Bush in May of this year. I would also like to especially recognize Representative Melissa Hart for her leadership in this area. Many of us were cosponsors of her legislation to permanently extend this benefit and we are all pleased that users of this program will now have the long-term stability that permanency brings. I'd also like to recognize the leadership of Representative Mark Kirk who chairs the Suburban Caucus and the caucus itself for their strong support of the 401Kids Family Savings Act.

Again, thank you for the opportunity to testify today and I'd be happy to respond to any questions that members may have for me. I am hopeful that the examination of this legislation today will help to move these remaining pieces towards enactment and soon make 401Kids accounts a reality for American families planning for their kid's future.