One Account to Rule Them All
Replacing 15+ savings vehicles with one universal account
By Matt Sly
Status: Working draft. This is a companion proposal to the Fair and Simple Tax Act. Feedback welcome at me@mattsly.com.
The Problem
The federal government currently incentivizes saving through at least 15 distinct account types: Traditional 401(k), Roth 401(k), Traditional IRA, Roth IRA, SEP IRA, SIMPLE IRA, 529 College Savings Plans, Coverdell Education Savings Accounts, ABLE Accounts, Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), Health Reimbursement Arrangements (HRAs), 457(b) Deferred Compensation Plans, Thrift Savings Plans, and employer-sponsored pension plans.
Each has its own contribution limits, income limits, eligibility rules, withdrawal penalties, required minimum distributions (or lack thereof), employer matching rules, and tax treatment. A financially literate person with a good accountant can navigate these to maximize tax-free growth. A normal person cannot. The complexity itself is a regressive tax on financial literacy.
The result: higher-income households with access to financial advisors optimize across multiple account types while lower-income households underutilize even the simplest options. Nearly half of American workers have no access to a workplace retirement plan, and of those who do, participation rates vary wildly based on plan complexity and employer match design.
The Proposal: Universal Savings Account (USA)
One account. One set of rules. Every American.
How it works:
- $1,000 government seed at birth. Every American starts with a funded account. This is the most progressive wealth-building policy available: it gives every child a compounding head start regardless of family income.
- $30,000 annual contribution cap (after-tax, indexed to CPI).
- Tax-free growth. No taxes on dividends, interest, or capital gains inside the account, similar to current Roth treatment.
- $5 million balance cap. Prevents the account from becoming an unlimited tax shelter (closes the Thiel Loophole from day one).
- Contributions withdrawable anytime. No penalty, no waiting period. Your contributions are your money.
- Qualified medical withdrawals: tax-free and penalty-free at any age. This consolidates the HSA benefit into the same account, eliminating a separate vehicle with its own rules.
- Gains before age 60: Taxed as capital gains, using the Lifetime Gains Framework exemption and sliding scale. Early withdrawal of gains is possible but not tax-free.
- Gains after age 60: Tax-free up to $2.5 million in total withdrawals (indexed). Gains above $2.5 million are taxed as capital gains under the Lifetime Gains Framework.
- No required minimum distributions. You are never forced to withdraw.
What it replaces: 401(k)s (Traditional and Roth), IRAs (Traditional and Roth), SEP IRAs, SIMPLE IRAs, 529 plans, Coverdell ESAs, ABLE accounts, HSAs, FSAs, HRAs, and 457(b) plans.
Why One Account?
Complex savings systems disproportionately benefit higher-income households with advisors. One universal account increases participation, reduces administrative costs, and makes public subsidies for saving transparent and fair.
The current system forces people to make decisions they are not equipped to make: Traditional vs. Roth? IRA vs. 401(k)? Should I max my HSA first? What’s my MAGI for backdoor Roth eligibility? Every one of these questions is an opportunity for the well-advised to optimize and the under-advised to lose.
A single account with simple rules eliminates these decisions. You save. It grows tax-free. You access it when you need it (contributions anytime, medical expenses anytime, everything else after 60). That’s it.
Even early withdrawals of gains benefit from years of tax-free compounding. The structure rewards patience without punishing flexibility.
The Great Conversion: Transitioning Legacy Accounts
Roughly $35+ trillion sits in existing tax-advantaged retirement accounts. Transitioning this to the USA requires a conversion mechanism that is attractive enough to drive adoption without being coercive.
The offer: a one-time 12% conversion tax rate.
- Convert pre-tax retirement accounts (Traditional 401(k), Traditional IRA, SEP, SIMPLE) to the USA at a flat 12% tax on pre-tax balances.
- After-tax accounts (Roth IRAs, Roth 401(k)s) convert with no additional tax.
- Pay the conversion tax in the year you convert (or spread across multiple years).
- The conversion does not count against the Lifetime Gains Framework exemption. This is a separate, one-time transition tax.
- The offer is available for 10 years after enactment. After year 10, legacy accounts freeze to new contributions.
Why 12%? It’s deliberately below the withdrawal tax rate most people would face (22-37%). The math is compelling: converting at 12% and letting the balance grow tax-free in a USA leaves most savers hundreds of thousands of dollars better off over a 20-30 year horizon compared to withdrawing from a Traditional account at ordinary income rates.
Example: $500K in a Traditional 401(k), 30 years to retirement, 5% annual growth:
| |
Convert at 12% |
Keep Traditional |
| Tax paid now |
$60,000 |
$0 |
| Balance after tax |
$440,000 |
$500,000 |
| Value at retirement (5%, 30 yrs) |
$1,884,000 |
$2,048,000 |
| Tax on withdrawal |
$0 |
~$758,000 (37%) |
| After-tax kept |
$1,884,000 |
$1,290,000 |
The conversion generates an estimated $1.2-1.3 trillion in one-time revenue over the 10-year window. This is not a tax increase; it is an acceleration of taxes that would have been collected at higher rates over the next 30+ years, offered at a discount that leaves savers better off.
After the window closes (year 11+):
- Legacy accounts freeze to new contributions.
- Existing balances continue under old withdrawal rules (RMDs, ordinary income rates).
- Conversion remains available but at regular capital gains rates, making the 12% window look increasingly generous in hindsight.
Employer Matching
Employer contributions continue to work as they do today, but into the USA instead of a 401(k). The administrative burden on employers decreases dramatically: one account type, one set of rules, one payroll integration. The current maze of plan compliance (ERISA testing, top-heavy rules, safe harbor requirements) simplifies substantially.
Open Questions
- $1,000 seed funding mechanism and cost. At roughly 3.6 million births per year, the annual cost is ~$3.6 billion. Modest relative to the savings system it replaces, but needs explicit funding source.
- 529 plan transition. Current 529 balances for education savings need a clean conversion path. Likely: roll into USA tax-free, since the USA subsumes the same purpose.
- HSA-eligible expense definition. The USA absorbs HSA functionality. Does the qualified medical expense definition carry over as-is, or simplify?
- Employer match vesting schedules. Current 401(k) vesting rules vary by employer. Needs standardization for the USA.
- State tax treatment. Some states have their own tax treatment for 529s, HSAs, and retirement accounts. Federal reform doesn’t directly control this.
- The $5M cap interaction with the Lifetime Gains Framework. The Roth reform in Rule 5 of the Lifetime Gains Framework already proposes a $5M balance cap. The USA subsumes this, but the interaction needs to be explicitly reconciled.
Revenue Impact
- The Great Conversion: $1.2-1.3 trillion in one-time revenue over 10 years (at 75-85% conversion rate).
- Ongoing: Roughly revenue-neutral. The USA is Roth-like (after-tax contributions, tax-free growth), which means the government collects taxes upfront rather than at withdrawal. This is a timing shift, not a revenue change, except to the extent that the $5M cap prevents unlimited tax-free accumulation.
- $1,000 seed cost: ~$3.6 billion per year.
Relationship to Other Proposals
- Lifetime Gains Framework: The USA’s tax treatment of gains (before age 60) uses the Framework’s exemption and sliding scale. Rule 5 (Roth Reforms) is subsumed by the USA.
- Income tax reform: Eliminating deductions and simplifying the rate table reduces the complexity of the decision between Traditional and Roth, which the USA eliminates entirely.
- FICA reform: Independent, but the combined effect of FICA elimination (more take-home pay) and the USA ($30K annual cap, no income limit) makes saving dramatically more accessible for working families.
- Child payment: The $1,000 seed and the child payment together form the inbound side of the system architecture: every child starts with a savings account and a monthly payment.
This proposal is part of the Fair and Simple Tax Act. All policy positions are the author’s own.