- The Washington Times - Monday, January 19, 2004

John and Berna Diehl figure they have done all they can to prepare financially for their family’s future. John, a geologist, and Berna, a public-relations executive, both have invested in 401(k) retirement plans at work. The Fairfax couple also has invested in mutual funds, and they have started 529 college-savings plans for each of their sons — a toddler and a newborn.

Still, Mrs. Diehl has questions. “One of the things I find myself wondering is, how much will I need? Am I saving too much for retirement? Am I not saving enough for the boys’ college?”

Last February, the Bush administration proposed creating Lifetime Savings Accounts to make it easier for families such as the Diehls to save money. Under the proposal, individuals could contribute as much as $7,500 annually to a tax-free Lifetime Savings Account and withdraw the money at any time for any reason. Once withdrawn from the account, the money would be subject to income tax.

In other words, unlike most investment vehicles, which have strict guidelines that govern their use and penalize investors for early withdrawal, Lifetime Savings Accounts could be used to save money tax-free for retirement, health care costs or anything else the account holder chooses.

“To me, that is very appealing,” said Mrs. Diehl, who said she probably would use a Lifetime Savings Account to consolidate some of her family’s current college and retirement savings plans.

The proposal for Lifetime Savings Accounts languished for a year while the White House focused on other parts of its ambitious tax-cutting agenda. Now, some administration officials, lawmakers and industry groups are urging President Bush to move his Lifetime Savings Accounts plan to the front burner.

This month, Sen. Craig Thomas, a Wyoming Republican, and Rep. Sam Johnson, a Texas Republican, urged the president to include a proposal for tax-free-savings plans in his next budget, which he is scheduled to submit to Congress in February.

In a joint statement, Mr. Thomas and Mr. Johnson said they will introduce tax-free-savings legislation as soon as the president submits his budget.

“We remain quite convinced that the savings initiative is an excellent idea and represents a tremendous opportunity to improve the savings rate in our country,” the lawmakers said in their statement.

Officials at the Treasury Department also have urged the White House to include a Lifetime Savings Account in the next budget. The Treasury officials see Lifetime Savings Accounts as an important part of the administration’s broader push to make savings and investments in the United States tax free.

“The Lifetime Savings Accounts were in last year’s budget because we believe they are good policy. This year’s budget has not yet been released, so stay tuned,” said Claire Buchan, a White House spokeswoman.

It is not clear how much tax revenue the government would lose if Americans converted their existing investment vehicles into tax-free Lifetime Savings Accounts. Some think tanks have reported the cost of the plans, coupled with President Bush’s other tax cuts, could reach into the trillions of dollars in the next decade.

According to some published reports, the original proposal for Lifetime Savings Accounts also raised concerns that the plans would discourage some small-business owners from offering retirement savings plans to their employees.

For example, if a business owner could save thousands of dollars each year for himself through a Lifetime Savings Account, he would have little incentive to set up a 401(k)-style retirement savings plan for himself and his employees.

To allay these fears, Treasury officials have talked about limiting the annual contributions individuals could make to a Lifetime Savings Account from $7,500 to $5,000, according to published reports.

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