WASHINGTON ? Americans would be allowed to sock more money away into a new breed of tax-free accounts that could be used to save for retirement, college expenses or other purposes, under a proposal put forward by the Bush administration Friday.
The proposal contained in President Bush?s 2004 budget is aimed at encouraging all Americans to save more, the Treasury Department said.
But critics contend that poor and middle-income people struggling to pay bills and make ends meet probably wouldn?t be in a position to put more money into such savings accounts, even though the contribution limits would be higher.
The changes envisioned in the Bush plan would have to be approved by Congress, Treasury Department officials said.
Under the plan, two new types of savings accounts would be created: lifetime savings accounts that can be used to save for any purpose, such as education, health care or buying a home; and retirement savings accounts.
A person would be permitted to contribute up to $7,500 a year to each account, for a maximum of $15,000 a year. Traditional Individual Retirement Accounts and Roth IRAs currently allow people to contribute up to $3,000 a year.
Contributions to the new accounts wouldn?t be tax deductible, but money in the accounts can grow tax-free and can be withdrawn tax-free. That?s similar to existing Roth IRAs; with traditional IRAs, the contributions are generally tax-deductible but money is taxed at withdrawal.
People would be able to withdraw money tax-free anytime from the lifetime savings accounts, but would have to wait until after the age of 58 to pull out money tax-free from the retirement savings accounts, Treasury said.
The new accounts would allow anyone to participate regardless of his or her income level, as opposed to Roth IRAs, which restrict participation based on income.
Under the Bush plan, people would be able to keep their existing IRAs, but they would no longer be allowed to make contributions to those accounts.
That provides an incentive for people to convert their existing IRAs into the new accounts, officials said.
?No longer will individuals have to worry about the confusing alphabet soup of six different savings accounts,? said Pam Olson, Treasury?s assistant secretary for tax policy. ?No longer will people have to worry about the endless maze of confusing rules. The two simple accounts will have one powerful goal ? making saving for everyday life and retirement security easier and more attractive.?<
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