- The Washington Times - Saturday, February 1, 2003

Americans would be allowed to sock more money away in new types of tax-free accounts that could be used to save for retirement, college expenses or other purposes under a proposal put forward by the Bush administration yesterday.
The proposal contained in President Bush's 2004 budget is intended to encourage all Americans to save more, the Treasury Department said.
Under the plan, two types of savings accounts would be created: lifetime savings accounts that can be used to save for any purpose, such as education, health care or buying a home, and retirement savings accounts.
A person would be permitted to contribute as much as $7,500 a year to each account, for a maximum of $15,000 a year. Traditional Individual Retirement Accounts and Roth IRAs allow people to contribute as much as $3,000 a year. People 50 and older could contribute an extra $500 for IRAs.
Critics contend that poor and middle-income people struggling to pay bills and make ends meet probably wouldn't be in a position to put more money into such savings accounts, even though the contribution limits would be higher.
The changes envisioned in the Bush plan would have to be approved by Congress, Treasury Department officials said.
Contributions to the new accounts wouldn't be tax deductible, but money in the accounts can grow tax-free and be withdrawn tax-free. That's similar to Roth IRAs. With traditional IRAs, the contributions are generally tax deductible but money is taxed on withdrawal.
People would be able to withdraw money tax-free anytime from the lifetime savings accounts but would have to wait until after age 58 to pull out money tax-free from the retirement savings accounts, Treasury said.
The new accounts would allow anyone to participate regardless income level, as opposed to Roth IRAs, which restrict participation based on income.
Under the Bush plan, people would be able to keep their IRAs, but they would no longer be allowed to make contributions to those accounts.
That provides an incentive for people to convert their IRAs into the new accounts, officials said.
But Dean Baker, an economist and co-director of the Center for Economic and Policy Research, a liberal think tank, said the plan would provide the biggest savings incentive to the wealthy because, in general, low- and middle-income Americans' contributions are well under the current contribution limits for IRAs.
"This is oriented to high-income people," Mr. Baker said. "This allows people to put more money into tax-sheltered accounts, but the vast majority of the population doesn't have enough money to contribute to these accounts under the old limits."

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