(A) IN GENERAL.—For each fifth calendar 
year beginning after 2008, the $500 amount in 
paragraph (1)(A) shall be increased by such 
dollar 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 2007’’ for ‘‘cal-
endar year 1992’’ in subparagraph (B) thereof. 
(B) ROUNDING.—If any amount adjusted 
under subparagraph (A) is not a multiple of 
$50, such amount shall be rounded to the next 
lowest multiple of $50. 
(e) PRIVATE CONTRIBUTIONS.—The Executive Di-
rector shall pay into the KIDS Account Fund such 
amounts as are contributed under section 3(f). 
SEC. 3. KIDS ACCOUNTS. 
(a) ESTABLISHMENT.—The Executive Director shall 
establish in the KIDS Account Fund a Kids Investment 
and Development Savings Account (hereafter in this Act 
referred to as a ‘‘KIDS Account’’) for each eligible indi-
vidual certified under subsection (b). Each such account 
shall be identified to its account holder by means of the 
account holder’s social security account number. 
(b) CERTIFICATION OF ACCOUNT HOLDERS.—On the 
date on which an eligible individual is issued a social secu-
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rity account number under section 203(c)(2) of the Social 
Security Act, the Commissioner of Social Security shall 
certify to the Executive Director and the Secretary of the 
Treasury the name of, and social security number issued 
to, such eligible individual. 
(c) ACCOUNT BALANCE.—The balance in an account 
holder’s KIDS Account at any time is the excess of— 
(1) the sum of— 
(A) all deposits made into the KIDS Ac-
count Fund and credited to the account under 
subsection (d), and 
(B) the total amount of allocations made 
to and reductions made in the account pursuant 
to subsection (e), over 
(2) the amounts paid out of the account with 
respect to such individual under section 6. 
(d) CREDITING OF CONTRIBUTIONS.—Pursuant to 
regulations which shall be prescribed by the Executive Di-
rector, the Executive Director shall credit to each KIDS 
Account the amounts paid into the KIDS Account Fund 
under subsections (d) and (e) of section 2 which are attrib-
utable to the account holder of such account. 
(e) ALLOCATION OF EARNINGS AND LOSSES.—The 
Executive Director shall allocate to each KIDS Account 
an amount equal to the net earnings and net losses from 
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each investment of sums in the KIDS Account Fund 
which are attributable, on a pro rata basis, to sums cred-
ited to such account, reduced by an appropriate share of 
the administrative expenses paid out of the net earnings, 
as determined by the Executive Director. 
(f) PRIVATE CONTRIBUTIONS.— 
(1) IN GENERAL.—The Executive Director shall 
accept cash contributions for payment into the 
KIDS Account Fund if such contribution is identi-
fied (in such manner as the Executive Director may 
require) with the account holder of a KIDS Account 
to whom it is to be credited at the time the contribu-
tion is made. 
(2) ALTERNATIVE
METHODS
OF
CONTRIBU-
TION.— 
(A) PAYROLL DEDUCTION.—Under regula-
tions prescribed by the Executive Director and 
at the election of the employer, contributions 
under paragraph (1) may be made through pay-
roll deductions. 
(B) TAX
REFUNDS.—Under regulations 
prescribed by the Secretary of the Treasury, 
contributions under paragraph (1) may be made 
by an election to contribute all or a portion of 
the tax refund of the contributor. 
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(3) ANNUAL LIMITATION.— 
(A) ACCOUNT HOLDERS UNDER AGE 18.— 
In the case of an account holder who has not 
attained age 18 at the end of a calendar year— 
(i) 
the 
limitation 
under 
section 
219(b)(1) of the Internal Revenue Code of 
1986 shall not apply, and 
(ii) the Executive Director shall not 
accept any contribution identified with 
such account holder if such contribution, 
when added to all other contributions made 
under this subsection during such calendar 
year with respect to such account holder, 
exceeds $2,000. 
(B) ACCOUNT
HOLDERS
AGE
OR 
OLDER.—In the case of an account holder who 
is age 18 or older at the end of a calendar year, 
any contribution identified with such account 
holder shall be taken into account under section 
219(b)(1) of the Internal Revenue Code of 
1986 for such year. 
(C) ADJUSTMENT FOR INFLATION.— 
(i) IN GENERAL.—For each fifth cal-
endar year beginning after 2008, the 
$2,000 amount under subparagraph (A)(ii) 
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shall be increased by such dollar amount 
multiplied by the cost-of-living adjustment 
determined under section 1(f)(3) of the In-
ternal Revenue Code of 1986 determined 
by substituting ‘‘calendar year 2007’’ 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. 
(g) ELIGIBLE INDIVIDUAL.—For purposes of this 
Act, the term ‘‘eligible individual’’ means any individual 
who is— 
(1) a United States citizen or a person de-
scribed in paragraph (1) of section 431(b) of the 
Personal Responsibility and Work Opportunity Rec-
onciliation Act of 1996, 
(2) born after December 31, 2007, and 
(3) less than 18 years of age. 
(h) RIGHTS OF LEGAL GUARDIAN.—Until the ac-
count holder of a KIDS Account attains age 18, any rights 
or duties of the account holder under this Act with respect 
to such account shall be exercised or performed by the 
legal guardian of such account holder. 
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SEC. 4. CERTIFICATIONS RELATED TO GOVERNMENT CON-
TRIBUTIONS. 
(a) 
SUPPLEMENTAL
GOVERNMENT
CONTRIBU-
TIONS.— 
(1) IN GENERAL.—Upon such showing as the 
Executive Director may require to establish the basis 
for certification, the Executive Director shall, with 
respect to each eligible account holder, certify to the 
Secretary of the Treasury the supplemental amount 
with respect to such account holder. 
(2) ELIGIBLE
ACCOUNT
HOLDER.—For pur-
poses of this subsection, the term ‘‘eligible account 
holder’’ means an account holder of a KIDS Ac-
count who, for the last taxable year ending before 
such account holder’s certification under section 
3(b), has a modified adjusted gross income which is 
below the applicable national median adjusted gross 
income amount. 
(3) SUPPLEMENTAL AMOUNT.— 
(A) IN GENERAL.—For purposes of this 
Act, the term ‘‘supplemental amount’’ means 
$500. 
(B) INCOME PHASE-OUT.—With respect to 
any account holder who has a modified adjusted 
gross income for the last taxable year ending 
before such account holder’s certification under 
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section 3(b) which is in excess of 50 percent of 
the applicable national median adjusted gross 
income amount, the $500 amount in subpara-
graph (A) shall be reduced (but not below zero) 
by an amount which bears the same ratio to 
$500 as such excess bears to 50 percent of the 
applicable national median adjusted gross in-
come amount. 
(C) ADJUSTMENT FOR INFLATION.— 
(i) IN GENERAL.—For each fifth cal-
endar year beginning after 2008, each of 
the $500 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 2007’’ 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. 
(b) GOVERNMENT MATCHING CONTRIBUTION.— 
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(1) IN GENERAL.—Upon such showing as the 
Executive Director may require to establish the basis 
for certification, the Executive Director shall, with 
respect to each private contribution to the account 
of an account holder which is made before such ac-
count holder attains age 18, certify to the Secretary 
of the Treasury the matching amount with respect 
to such contribution. 
(2) MATCHING AMOUNT.— 
(A) IN GENERAL.—For purposes of this 
subsection, 
the 
term 
‘‘matching 
amount’’ 
means, with respect to the first $500 of private 
contributions to an account during any calendar 
year, an amount equal to 100 percent of such 
contribution. 
(B) INCOME PHASE-OUT.—With respect to 
any account holder who has a modified adjusted 
gross income for the last taxable year ending 
before such contribution which is in excess of 
100 percent of the applicable national median 
adjusted gross income amount, the $500 
amount in subparagraph (A) shall be reduced 
(but not below zero) by an amount which bears 
the same ratio to $500 as— 
(i) such excess, bears to 
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(ii) 20 percent of the applicable na-
tional 
median 
adjusted 
gross 
income 
amount. 
(C) ADJUSTMENT FOR INFLATION.— 
(i) IN GENERAL.—For each fifth cal-
endar year beginning after 2008, each of 
the $500 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 2007’’ 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— 
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(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. 
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(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), 
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(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. 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), except that section 
408A of such Code shall be applied separately to 
KIDS Accounts and 
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(2) any distribution from such account shall be 
treated in the same manner as a distribution from 
a Roth IRA. 
(b) SEPARATE APPLICATION OF TAXATION RULES.— 
For purposes of this Act, section 408A, other than sub-
section (c) thereof (relating to treatment of contributions), 
of the Internal Revenue Code of 1986 shall be applied sep-
arately to KIDS accounts. 
(c) MINIMUM BALANCE.—No amount shall be dis-
tributed pursuant to subsection (a)(2) to the extent such 
distribution would cause the balance of such account to 
be less than the amount transferred to such account under 
section 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). 
(d) DISTRIBUTIONS FOR HIGHER EDUCATION.—In 
the case of higher education expenses of an account holder 
incurred during the period beginning on the date the ac-
count holder attains 18 and ending before the account 
holder attains 25, no amount shall be treated as a quali-
fied distribution pursuant to subsection (a)(2) unless such 
amount is paid directly to the institution of higher edu-
cation (as defined in section 101 of the Higher Education 
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Act of 1065 (20 U.S.C. 1001) through which the higher 
education is provided. 
(e) AGE LIMITATION.—Except as otherwise provided 
by this Act, 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. 
(f) 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. 
(2) QUALIFIED ROLLOVERS.— 
(A) IN GENERAL.—Under regulations pre-
scribed by the Secretary of the Treasury in con-
sultation with the Executive Director, after the 
account holder of a KIDS Account attains the 
age of 18 (or, if earlier, on the date of the roll-
over contribution if the balance in such KIDS 
Account exceeds $10,000), such account holder 
may elect to make a rollover contribution from 
such account holder’s account to a privately 
managed KIDS Account (as defined in section 
408B of the Internal Revenue Code of 1986). 
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(B) LIMITATION.—No rollover contribution 
may be made under this paragraph to the ex-
tent that such rollover contribution would cause 
the balance of such account holder’s account to 
be less than the minimum balance specified in 
subsection (c). 
(g) 100 PERCENT TAX ON GOVERNMENT CONTRIBU-
TIONS.— 
(1) KIDS ACCOUNTS.— 
(A) IN
GENERAL.—In the case of any 
amount distributed from a KIDS Account 
which is attributable to contributions made 
under section 2(d) and which would be includ-
ible in gross income (but for this paragraph)— 
(i) such amount shall not be includible 
in gross income, and 
(ii) the tax imposed under chapter 1 
of the Internal Revenue Code of 1986 on 
the distributee for the taxable year in 
which such amount is distributed shall be 
increased by 100 percent of such amount. 
(B) ORDERING RULES.—For purposes of 
this paragraph, distributions from KIDS Ac-
counts shall be treated as made from amounts 
attributable to contributions made under sec-
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tion 3(f) and from earnings before made from 
amounts attributable to contributions made 
under section 2(d). 
SEC. 7. PRIVATE MANAGEMENT OF KIDS ACCOUNTS. 
(a) IN GENERAL.—Part I of subchapter D of chapter 
1 of the Internal Revenue Code of 1986 is amended by 
inserting after section 408A the following new section: 
‘‘SEC. 408B. PRIVATELY MANAGED KIDS ACCOUNTS. 
‘‘(a) IN GENERAL.—Except as provided in this sec-
tion, a privately managed KIDS Account shall be treated 
in the same manner as a Roth IRA, except that: 
‘‘(1) QUALIFIED SPECIAL PURPOSE DISTRIBU-
TIONS.—Qualified special distributions (as defined in 
section 408A(d)(5)) shall include— 
‘‘(A) distributions to the extent that such 
distributions do not exceed qualified higher edu-
cation 
expenses 
(as 
defined 
in 
section 
529(e)(3)) of the beneficiary of a privately man-
aged KIDS Account, reduced by the sum of— 
‘‘(i) the amount excluded from gross 
income under section 127, 135, 529, or 
530 by reason of such expenses, 
‘‘(ii) the amount excluded from gross 
income under section 221 by reason of 
such expenses (determined without regard 
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to the last sentence of subsection (d)(2) 
thereof), 
‘‘(iii) the amount of any scholarship, 
allowance, or payment described in section 
25A(g)(2), and 
‘‘(iv) the amount of such expenses 
which were taken into account in deter-
mining the credit allowed to the taxpayer 
or any other person under section 25A, 
and 
‘‘(B) amounts which within 60 days of dis-
tribution are transferred to a qualified tuition 
program under section 529 for the benefit of 
the account holder of a privately managed 
KIDS Account or a member of the family 
(within the meaning of section 529(e)(2)) of 
such account holder. 
‘‘(2) 
NONEXCLUSION
PERIOD
DOES
NOT 
APPLY.—Section 408A(d)(2)(B) shall not apply. 
‘‘(3) QUALIFIED ROLLOVER.—In lieu of the def-
inition given the term ‘qualified rollover contribu-
tion’ under section 408A(e), such term shall mean a 
rollover contribution to a privately managed KIDS 
Account from another such account or from a KIDS 
Account under section 7(b)(2)(A) of the America 
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