Lawmakers have introduced a series of bills that would beef up tax incentives for individuals who are trying to use private savings and private insurance to prepare for retirement and long term care expenses.[@@]
Sens. Charles Grassley, R-Iowa, chairman of the Senate Finance Committee, and Blanche Lincoln, D-Ark., a ranking member of the panel, introduced a bill Wednesday that would provide an “above the line” federal income tax deduction for long term care insurance premiums and an initial $1,000 annual tax credit for individuals with LTC needs and individuals who provide long term care. The credit eventually would grow to $3,000.
The bill also would permit the inclusion of long term care policies in employer-sponsored cafeteria plans and flexible spending accounts. The bill mirrors legislation Grassley and former Sen. Bob Graham, D-Fla., introduced in the last Congress.
Elsewhere in Congress, Rep. Earl Pomeroy, D-N.D., has introduced a bill seeking to create a new system of “paychecks for life.” That bill would encourage workers to annuitize some of their retirement savings, by excluding $5,000 of lifetime annuity payments from taxation each year. The Pomeroy bill excludes 50% of income from a nonqualified annuity, up to $5,000, and it excludes 25% of income from a qualified annuity, up to $5,000.
Earlier this month, Sens. Gordon Smith, R-Ore., and Kent Conrad, D-N.D., introduced a comprehensive retirement savings incentive bill. Their bill includes a provision that would provide a monthly tax-advantaged payout. Nonqualified plans would have a 50% exclusion, up to $20,000, while qualified annuities would have a 10% exclusion, up to $2,100.
In May, Rep. Nancy Johnson, R-Conn., introduced legislation that would exclude 50% of income from a nonqualified annuity, up to $20,000.
In addition to creating a caregiver tax credit, the Smith-Conrad bill would encourage employers to enroll employees in 401 (k) plans automatically, and it would offer help with paying for retirement asset management for individuals without access to employer-sponsored plans.
The Smith-Conrad bill also would include an “automatic increase design” feature. That feature would let employers increase employee contribution levels automatically each year, unless workers opted out.
Other Smith-Conrad bill provisions include section that would help workers shift a portion of unused flexible spending account funds into retirement accounts and a section that would send workers’ tax refunds directly to the workers’ retirement accounts.