Bush pushes two new retirement account options

Published 9:00 pm Saturday, November 22, 2003

WASHINGTON — The Bush administration plan a major push to simplify tax rules covering retirement savings accounts by starting two new kinds of accounts, Treasury Secretary John Snow said last week.

Snow, in a speech to the Tax Foundation in Washington, said the administration would encourage Congress to enact a new type of retirement savings account and a new lifetime savings account that President Bush first put forward in February.

The proposals are expected to be the centerpiece of the administration’s election-year tax agenda next year.

Snow said the accounts would "make saving for everyday life and retirement security easier and more attractive. This simplification will encourage Americans to save more for their future and thereby invest more in our economy."

Snow did not go into details of how the new accounts would work or whether they would be modified from the proposals Bush included in the budget he sent Congress in February.

Those proposals generated heavy opposition from Democrats who contended the accounts would add billions of dollars to future government deficits and would mainly help the wealthy.

Under the administration’s February proposal, the lifetime savings accounts would allow individuals to withdraw money tax-free at any time for any purpose. That flexibility is not currently available under existing Individual Retirement Accounts or special savings accounts the government has created for education or medical expenses.

The second proposed account for retirement savings would replace existing IRAs.

In both accounts, the yearly individual contribution limit of $7,500 would be more than double the current $3,000 individual contribution limit for IRAs.

Both new accounts would work like Roth IRAs in that contributions would not be tax deductible but investment income would build up tax free inside the accounts and the money would not be subject to taxes upon withdrawal.

The administration’s original proposal did away with the income caps that govern current IRAs. Married couples with an adjusted gross income of more than $160,000 currently do not qualify for Roth IRAs.

The proposals were initially drafted by the Treasury Department when it was headed by Secretary Paul O’Neill, who was forced to resign in December.

The president included the proposals in his budget, but the administration chose to put its emphasis last year on lobbying Congress to enact another round of tax cuts in an effort to boost the lagging economic recovery.

Snow in his speech said the administration’s renewed push for the savings accounts was based in part on the need to simplify the tax code.

"Retirement account regulations are among the most complex in our tax code," Snow said.

He said that Internal Revenue Service publication explaining individual retirement accounts was just 12 pages long in 1982 but had now grown to 104 pages. Snow said that there are currently six different savings accounts with "confusing and seemingly endless rules."

"The direct result is that the tax code makes it more difficult for Americans to save for retirement, or save for other key life events, such as education, health care and unexpected emergencies," he said.

Copyright ©2003 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.