Industry Concerned That Treasury Is Still Pushing Life Savings Accounts
The Treasury Department is continuing to promote tax-free Lifetime Savings Accounts that some in the life insurance industry believe could discourage consumers from purchasing annuities.
Pamela Olson, Assistant Treasury Secretary for Tax Policy, says President Bushs budget proposals to create a simplified personal retirement savings system would encourage Americans to save for their own retirements.
Olson spoke at a Retirement Savings Conference jointly sponsored by the Investment Company Institute and the Securities Industry Association.
Olson says the current tax code discourages saving.
“Nowhere is this problem more evident than in the numerous savings vehicles we have in the code,” she says.
“Instead of simplifying to increase savings, we keep adding complexity–more rules, more limitations, more terms, more conditions, more qualifiers, more provisos, more exceptions,” Olson says.
“As a result,” she says, “Americans are decreasingly inclined to save, rather than trying to figure out the complex rules.”
She notes that the administration advocates replacing the current system with three simplified retirement savings accounts.
One account, the Lifetime Savings Account, would allow an individual to save up to $7,500 annually, earn interest tax-free and withdraw money at any time and for any purpose with no penalty.
In addition, the administration is proposing Retirement Savings Accounts to replace Individual Retirement Accounts.
These would also allow individuals to save up to $7,500 tax-free, so long as the earnings are not distributed before the owner reaches age 58 or becomes disabled.
Finally, 401(k) and other plans would be consolidated into Employer Retirement Savings Accounts.
Olson says the two individual accounts will make saving for everyday life and retirement security easier and more attractive.
“Make no mistake about it; the real winners here are average Americans,” she says.
“In a matter of less than a decade, the accounts would permit all lower and moderate income Americans to enjoy the benefits of tax-free compounding and freedom from the complexity of Schedule B and Schedule D for all of their savings,” Olson says.
She adds that confusion and frustration are far too common among individuals trying to save.
In 1982, she says, the IRS publication explaining IRAs was 12 pages long. Now, Olson says, it is 104 pages long.
“People should not have to worry about the confusing alphabet soup of six different savings accounts and the endless maze of confusing rules,” she says.