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Retirement Planning > Saving for Retirement

Treasury Announces Bush Savings Program Proposals

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NU Online News Service, Feb. 2, 2004, 4:47 p.m. EST – The U.S. Treasury Department says President Bush has included 4 new savings programs in his 2005 budget.[@@]

The programs would create retirement savings accounts, lifetime savings accounts, employer retirement savings accounts and individual development accounts.

Each taxpayer could contribute up to $5,000 per year to RSAs and LSAs.

Only employers could contribute to the proposed ERSAs. The Bush proposal calls for the employer retirement accounts to replace 401(k), SIMPLE, 403(b) and 457 plans.

The individual development accounts would be aimed at low-income and moderate-income taxpayers. The government would provide up to $500 in dollar-for-dollar matching contributions for the poorest individuals.



  • $5,000 annual contribution limit (indexed for inflation).
  • Available to all individuals ? no income limits (contributions cannot exceed compensation), no age limits.
  • Contributions would be nondeductible.
  • Earnings would accumulate tax-free, and qualified distributions would be excluded from gross income.
  • Qualified distributions could be made after age 58 or in the event of death or disability.
  • Nonqualified distributions: Distributions in excess of prior contributions would be included in income and subject to an additional tax.
  • Roth IRAs would be renamed RSAs and benefit from the new rules for RSAs.
  • Existing traditional and nondeductible IRAs could be converted into an RSA by taking the conversion amount into gross income, similar to a current-law Roth conversion.
  • No income limit would apply to the ability to convert.
  • New traditional IRAs could be created to accommodate rollovers from employer plans, but they could not accept any new individual contributions.
  • Individuals wishing to roll an amount directly from an employer plan to an RSA could do so by taking the rollover amount (excluding basis) into gross income (i.e., “converting” the rollover, similar to a Roth conversion under the current law).


  • $5,000 annual contribution limit (indexed for inflation).
  • Available to all individuals ? no income limits, no age limits.
  • Contributions would be nondeductible (like Roth IRAs).
  • Earnings would accumulate tax-free and all distributions would be excluded from gross income.
  • No minimum required distribution rules would apply at any age during the owner’s life.
  • Contribution limit of $5,000 applies to the individual owner of the account, not the contributor.
  • Contributors could make annual contributions to the accounts of other individuals.
  • Annual aggregate contributions to an individual’s accounts could not exceed $5,000.
  • Individuals could convert balances from Coverdell Education Savings Accounts or Qualified Tuition Plans to LSAs.
  • Individuals could continue to contribute to ESAs and QTPs as under current law.
  • Health savings accounts and Archer Medical Savings Accounts would be retained.


The plans would replace the following types of plans:

  • 401(k)
  • SIMPLE 401 (k)
  • 403 (b)
  • Governmental 457


  • Dollar-for-dollar matching contributions provided to individuals up to $500.
  • Single filers with incomes below $20,000, joint filers with incomes below $40,000 and head-of-household filers with incomes below $30,000 would be eligible.
  • Matching contributions supported by 100% tax credit for sponsoring financial institutions that provide matches to individuals.
  • A $50-per-account credit for financial institutions to cover ongoing costs of maintaining and administering each account and providing financial education to participants.
  • Qualified withdrawals of contributions and matching funds for higher education, first-time home purchase, and small business capitalization.


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