Bush Proposes Overhaul Of Retirement Accounts
A WALL STREET JOURNAL ONLINE News Roundup
WASHINGTON -- The Bush administration proposed sweeping changes Friday (1/31/2003) in tax-advantaged retirement-savings accounts, such as greatly expanding the traditional Roth IRA, eliminating income caps and boosting contribution limits.
The White House is proposing to create two new tax-deferred savings accounts that don't offer tax deductions for contributions, but will allow the funds to grow tax-free and be withdrawn without taxes.
The changes, which require congressional approval, would mean more people would effectively forgo their upfront deductions and pay more in tax in the short run, analysts have said. The government would thus collect more tax upfront, but potentially much less in the years to come -- say, 10 to 20 years from now -- on the appreciated savings.
President Bush's fiscal year 2004 budget will contain a plan to create "lifetime-savings accounts," which can be used for any type of savings, and "retirement-savings accounts," from which money can be withdrawn after a taxpayer reaches the age of 58. People can withdraw money tax-free at any time from the lifetime-savings accounts. Taxpayers will be able to convert existing IRAs into these new accounts.
"No longer will individuals have to worry about the confusing alphabet soup of six different savings accounts," Pam Olson, assistant Treasury Secretary for tax policy, said in a prepared statement.
"The two simple accounts will have one powerful goal -- making saving for everyday life and retirement security easier and more attractive," she said.
Taxpayers can contribute up to $7,500 to each account, for a maximum of $15,000 a year. The $7,500 limit will be indexed for inflation.
The proposed new retirement account has no income limit, unlike the current Roth accounts, which are restricted to married couples with incomes up to $160,000 and singles with up to $110,000. Taxpayers won't get a tax deduction for contributing to either the lifetime-savings or retirement-savings accounts.
The $7,500 contribution limit for the new accounts is higher than the current cap of $3,000 for a Roth IRA or $3,500 for people age 50 and older.
The lifetime-savings accounts are designed to simplify the current tax-deferred savings arrangements. Taxpayers won't need to anticipate future qualified expenses and allocate savings among tax-preferred accounts, unlike the current education-savings and medical-savings accounts, the Treasury Department said.
"Taxpayers won't be required to document qualified expenses, financial institutions will not need to explain complicated rules to participants and the government will not need to verify the qualifying expenses," the Treasury said.
In addition, the Bush administration is weighing consolidation of a range of plans, such as 401(k)s, that have complex and varying provisions. It also is considering changes to pension rules to encourage more companies to offer them. Among other things, the changes could ease so-called top-heavy rules that limit the amounts executives can give themselves. That could encourage more company owners to undertake the expense of setting up plans.
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