It is always important to have current information about governmental proposals regarding
our financial needs. This year's Congressional Session is looking at a new proposal
to simplify tax-preferred savings accounts for retirement and education. This modified
plan includes three main savings vehicles: Lifetime Savings Accounts; Retirement
Savings Accounts, and Employer Retirement Savings Accounts. These changes could
have a large effect on an individual's ability to save for retirement.
Lifetime Savings Accounts
Lifetime Savings Accounts would allow an individual to save up to $5,000 a year in
an account with benefits similar to a Roth IRA. Individuals would pay tax on their
contributions into these accounts but would not pay tax on any of the gains earned
inside them. This proposal includes an option for individuals to withdraw money
from these accounts at any time without paying tax. Many insurance companies and
mutual fund companies have expressed dissatisfaction with this portion of the proposal.
Because of the Roth-like tax treatment, flexibility, and lack of restrictions, individuals
would most likely contribute to lifetime savings accounts before other traditional
retirement investing accounts. This is of great concern for the insurance industry
as individuals may spend less on insurance products like annuities.
Retirement Savings Accounts
In addition to Lifetime Savings Accounts, Retirement Savings Accounts offer individuals
an opportunity to save additional funds in a Roth-like account. Up to $5,000 a year
could be invested into a retirement savings account. Roth-like implies that these
accounts are tax-free; you never pay tax on the gains of the account. For 2005-2007,
the annual Roth IRA contribution limit is $4,000 for those under 50. This would
allow an investor to put away more money than is currently allowable in a tax friendly
and much more flexible account.
Employer Retirement Savings Accounts
401(k)s are expected to be replaced by Employer Retirement Savings Accounts. This
will not affect the individual investor as much as individual employers. This type
of account is designed to offer increased simplification to employers offering 401(k)s.
These proposed accounts are designed to be available to all individuals regardless
of income. With current IRA accounts there are income limits. In order to qualify
to contribute to a Roth IRA or take a tax deduction for a contribution to a Traditional
IRA, an individual must fall under the income ceilings for those accounts. The proposed
accounts would not have an income ceiling, allowing those who make more money to
participate in the preferred tax treatment of retirement accounts. Many have expressed
their displeasure claiming this open availability favors the rich. Due to this discontent
and increased pressure from the insurance industry, it is unlikely these retirement
savings changes will be passed during this session of Congress. Barring a mass response
from taxpayers nationwide to their Congressional Representatives, we could be talking
about another similar proposal this time next year.
More Information: Self Directed IRA LLC & Small Business Financing