to 100 percent of the applicable national me-
dian adjusted gross income amount. 
(C) ADJUSTMENT FOR INFLATION.— 
(i) IN GENERAL.—For each fifth cal-
endar year beginning after 2006, each of 
the $1,000 amounts under subparagraphs 
(A) and (B) shall be increased by such dol-
lar amount multiplied by the cost-of-living 
adjustment 
determined 
under 
section 
1(f)(3) of the Internal Revenue Code of 
1986 determined by substituting ‘‘calendar 
year 2005’’ for ‘‘calendar year 1992’’ in 
subparagraph (B) thereof. 
(ii) ROUNDING.—If any amount ad-
justed under clause (i) is not a multiple of 
$50, such amount shall be rounded to the 
next lowest multiple of $50. 
(3) PRIVATE CONTRIBUTION.—For purposes of 
this subsection, the term ‘‘private contribution’’ 
means a contribution accepted under section 3(f). 
(c) DEFINITIONS AND RULES RELATING TO MODI-
FIED ADJUSTED GROSS INCOME.—For purposes of this 
section— 
(1) SPECIAL
RULE
FOR
ACCOUNT
HOLDERS 
WHO CAN BE CLAIMED AS DEPENDENTS.—In the
case of an account holder of a KIDS Account for 
whom a deduction is allowable under section 151 of 
the Internal Revenue Code of 1986 to another tax-
payer, any reference in this section to the modified 
adjusted gross income of the account holder for any 
taxable year shall be treated as a reference to the 
modified adjusted gross income of such other tax-
payer. 
(2) MODIFIED ADJUSTED GROSS INCOME.—The 
term ‘‘modified adjusted gross income’’ has the 
meaning given such term in section 221(b) of the In-
ternal Revenue Code of 1986. 
(3) APPLICABLE NATIONAL MEDIAN ADJUSTED 
GROSS INCOME.— 
(A) IN GENERAL.—The term ‘‘applicable 
national median adjusted gross income’’ means, 
with respect to any calendar year, the median 
amount of adjusted gross income (as defined in 
section 62 of the Internal Revenue Code of 
1986) for individual taxpayers for taxable years 
ending in the prior calendar year as determined 
by the Secretary of the Treasury. 
(B) JOINT RETURNS.—The applicable na-
tional median adjusted gross income shall be
calculated and applied separately with respect 
to joint returns and all other returns. 
SEC. 5. RULES GOVERNING KIDS ACCOUNTS RELATING TO 
INVESTMENT, ACCOUNTING, AND REPORT-
ING. 
(a) DEFAULT INVESTMENT PROGRAM.—The KIDS 
Account Fund Board shall establish a default investment 
program under which, in a manner similar to a lifecycle 
investment program, sums in each KIDS Account are allo-
cated to investment funds in the KIDS Account Fund 
based on the amount of time before the account holder 
attains the age of 18. Each account holder of a KIDS 
Account shall be enrolled in such program unless such ac-
count holder, in such form and manner as prescribed by 
the Executive Director, elects otherwise. 
(b) OTHER RULES.—Under regulations which shall 
be prescribed by the Executive Director, and subject to 
the provisions of this Act, the provisions of— 
(1) section 8438 of title 5, United States Code 
(relating to investment of the Thrift Savings Fund), 
(2) section 8439(b) of such title (relating to en-
gagement of independent qualified public account-
ant),
(3) section 8439(c) of such title (relating to 
periodic statements and summary descriptions of in-
vestment options), and 
(4) section 8439(d) of such title (relating to as-
sumption of risk), shall apply with respect to the 
KIDS Account Fund and accounts maintained in 
such Fund in the same manner and to the same ex-
tent as such provisions relate to the Thrift Savings 
Fund and the accounts maintained in the Thrift 
Savings Fund. For purposes of this subsection, ref-
erences in such sections 8438 and 8439 to an em-
ployee, Member, former employee, or former Member 
shall be deemed references to an account holder of 
a KIDS Account in the KIDS Account Fund. 
SEC. 6. DISTRIBUTIONS FROM KIDS ACCOUNTS. 
(a) IN GENERAL.—Under regulations prescribed by 
the Executive Director, amounts in a KIDS Account shall, 
at the request of the account holder, be distributed to the 
account holder if such distribution is a qualified distribu-
tion (within the meaning of section 408A(d)(2) of the In-
ternal Revenue Code of 1986). 
(b) AGE LIMITATION.—No distribution shall be made 
under subsection (a) with respect to any account holder 
of a KIDS Account before such account holder attains age 
18.
(c) MINIMUM BALANCE.—No amount shall be dis-
tributed under subsection (a) to the extent such distribu-
tion would cause the balance of such account to be less 
than the amount transferred to such account under sec-
tion 2(d)(1)(A) before the account holder— 
(1) attains age 591⁄2, 
(2) dies, or 
(3) becomes disabled (within the meaning of 
section 72(m)(7). 
SEC. 7. TAX TREATMENT OF KIDS ACCOUNTS. 
(a) IN GENERAL.—Except as otherwise provided in 
this Act, for purposes of the Internal Revenue Code of 
1986— 
(1) each KIDS Account shall be treated in the 
same manner as a Roth IRA (within the meaning of 
section 408A of such Code), and 
(2) any distribution from such account shall be 
treated in the same manner as a distribution from 
a Roth IRA. 
(b) QUALIFIED ROLLOVERS CONTRIBUTIONS.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), no qualified rollover contribution (as de-
fined in section 408A(e) of the Internal Revenue 
Code of 1986) shall be allowed with respect to a 
KIDS Account.