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Bush Unveils IRA, Trust, Retirement Savings Ideas

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The Bush administration has included many provisions of interest to life and health insurers in its 2006 budget proposal.[@@]

The administration proposals section of “Analytical Perspectives, Budget of the United States Government, Fiscal Year 2006,” calls for the following:

- Combining 401(k) plans, 403(b) plans and other employment-based savings accounts to form a single set of Employee Retirement Savings Accounts. A safe harbor option would protect employers from antidiscrimination rules if they provided a 50% match on elective contributions up to 6% of compensation.

- An above-the-line tax deduction for individuals who buy high-deductible health insurance that is compatible with health savings accounts and a refundable tax credit for small employers’ contributions to employees’ HSAs.

- Unlimited tax-free withdrawals from individual retirement accounts when the IRA assets are given to charity.

- A 100% excise tax on unrelated business taxable income of charitable remainder trusts, in lieu of removing the federal income tax exemption, for any year in which unrelated business taxable income is incurred.

- An effort to discourage charities and private investors from buying life insurance policies insuring unrelated individuals by imposing a nondeductible, 25% excise tax on death benefits, dividends, withdrawals, loans and surrenders under a life contract if “a charity has ever had a direct or indirect ownership interest in the contract, and a person other than a charity has ever had a direct or indirect interest in the same contract.”

In related news, a chart listing “income tax expenditures,” or revenue lost by the federal government as a result of tax breaks, shows that exclusion of employer-sponsored medical insurance premiums from taxable income comes in first. That tax break will cost the federal government about $126 billion in 2006. The cost of the medical insurance tax break is nearly twice as expensive as the deduction for mortgage interest, according to the federal officials who compiled the report.

Links to many official budget documents are on the Web at //

The “Analytical Perspectives” document is posted on the Web at