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BUSH PROPOSES TWO NEW SAVINGS PLANS
The Bush Administration has proposed two radical savings plans designed to benefit wealthy taxpayers. Both build on the Roth IRA concept: no current deduction, tax-free accumulation of wealth and tax-free distributions. Unlike the Roth IRA, all taxpayers, regardless of income, will be eligible and the maximum contribution to each plan is $7,500 a year ($15,000 for married couples filing jointly). Also proposed is a modified 401(k) type plan for employees. 
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LIFETIME SAVINGS ACCOUNTS
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Lifetime savings accounts permit a maximum contribution of $7,500 per year. This limit will be annually adjusted for inflation. Taxpayers will not receive an immediate deduction, but withdrawals will be tax free and can be used for any purpose. All taxpayers are eligible to contribute to the lifetime savings account: there are no age or income limitations. Withdrawals may occur at any age.
Current medical savings accounts, Coverdell education savings accounts, state tuition savings plans can be converted before January 1, 2004, however, taxes on the earnings and profits will be paid.
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RETIREMENT SAVINGS ACCOUNTS
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Retirement savings accounts resemble the current Roth IRA, but without the income and contribution limitations. There is no immediate tax deduction for contributions, however funds may accumulate and withdrawn tax-free and without penalty after age 58.
The annual contribution limit will be $7,500, however this limit will be adjusted for inflation.
As with the current Roth IRA, a regular IRA may be converted to a retirement savings account, provided taxes are paid on the earnings and profits generated by the IRA. Just like the lifetime saving account, all taxpayers are eligible to contribute to the retirement savings account: there are no age or income limitations.
Example: John and Sally have a combined income of $500,000 per year. The maximum contributions to both plans would be:
| Account |
John |
Sally |
| Lifetime Savings |
$7,500 |
$7,500 |
| Retirement Savings |
$7,500 |
$7,500 |
| Total per year |
$15,000 |
$15,000 |
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EMPLOYER RETIREMENT SAVINGS ACCOUNT
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The employer retirement savings account is similar to the current 401(k) accounts, the employer receives an immediate deduction, earnings and profits build up tax-free, but withdrawals are taxed at ordinary income rates. In fact, current 401 (k) accounts will be unaffected if renamed employer retirement savings accounts.
The annual contribution limits will be $12,000 in 2003, stepping up to $15,000 in 2005. Taxpayers over age 50 may contribute and additional $2,000 per year from 2003 through 2005 and then $5,000 per year thereafter.
Current 403(b) and government 457 plans, salary reductions simplified employee pensions and simple IRA’s may be converted to employer retirement savings accounts, provided taxes are paid on the profits.
The current restrictions on 401 (k) plans regarding “top-heavy” plans (those that favor highly compensation employees) and the matching contribution requirements will be eliminated. Many small businesses complained that current 401(k) rules were too burdensome, compared to the benefits provided to their lower income employees.
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