The President’s 2004 budget, due to be sent to Congress on Monday, reportedly include plans for a major consolidation of tax laws governing a number of current retirement plans.
The goal of the retirement plan rewrite is to trim back regulations governing such plans in an effort to encourage more employers to offer them and more Americans to pump up their savings rate, the news reports said. Small business owners are a particular target of this initiative. However, a possible casualty of the simplicity drive: the requirement that companies contribute to accounts of lower-paid workers if most benefits go to top executives.
The news reports say the administration could benefit from a larger pool of retirement savers by broadening the potential appeal of Bush’s proposed dividend tax cut.
Lifetime Savings Account
In addition to a potential revamp of employer-based retirement savings programs, another major element of the plan is a new “lifetime savings account” that would work like a Roth IRA. The money saved could be used for more than retirement. News reports say the accounts are expected to carry a $7,500 annual contribution limit.
The administration is considering raising the $3,000 annual contribution limit to Roth IRAs to $7,500 and eliminate the income limit.
According to the news reports, components of the Bush plan are expected to include prohibiting new contributions to traditional IRAs and providing incentives to convert traditional IRAs to Roths. The changes would increase tax revenue in the short run because Roth IRAs are funded with after-tax income, but it would leave future generations with less tax revenue, some experts point out, because Roth IRA distributions are tax free. Traditional IRAs also could be phased out as part of the package being considered.