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Retirement Planning > Saving for Retirement

Savings Initiative

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Senator Craig Thomas (R-WY) and Rep. Sam Johnson (R-TX) introduced legislation last month calling for the adoption of the Bush Administration’s savings accounts–Lifetime Savings Accounts (LSAs), Retirement Savings Accounts (RSAs), and Employer Retirement Savings Accounts (ERSAs). Bush originally proposed the savings accounts in 2003, and has included the plans in his 2006 budget. Two bills were introduced in 2004 supporting adoption of the savings plans, but neither one passed.

In introducing the latest legislation, called the “SAVE Initiative,” Thomas said, “as Social Security strains under increasing pressure, it’s more important that we recognize that Social Security was never intended to be a sole source of retirement income. We must provide a simpler, more responsive system for Americans to accumulate personal savings for retirement.”

As proposed, RSAs have a $5,000 annual contribution limit without age or income eligibility requirements, non-deductible contributions, and tax-free earnings. LSAs have no minimum distribution rules and can be converted from Coverdell Education Savings Accounts and Qualified Tuition Plans. Qualified distributions for RSAs begin at age 58 or upon death or disability, and IRA plans can be converted to an RSA. ERSAs would have an annual employee salary deferral limit of $15,000 and combine and streamline current rules for 401(k)s, simple 401(k)s, 403(b)s, 457s, SARSEP, or simple IRA accounts. ERSAs are available to all employers.

Bill DeReuter, the assistant director of the FPA’s government relations staff and a tax expert, doubts the Thomas/Johnson bill will get anywhere this year. Congress’s priority will be fixing the tax provisions that expire at the end of the year, he says, as well as other provisions that expire in 2008 and 2010. Any discussion about the savings proposals will also have to wait until the President’s tax reform committee comes out with its report at the end of July, DeReuter says.

Congressional Democrats are vehemently opposed to President Bush’s proposal to create private accounts within Social Security, but they have signaled they could support a plan where private accounts were an add-on to the current Social Security system. The LSA/RSA discussion “could come up in the context of Social Security,” DeReuter says. If the Administration wants to do something outside of Social Security, the savings plans “could be an option that [Democrats] consider.”–Melanie Waddell


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