Download IRA PROVISIONS IN BIPARTISAN RETIREMENT SAVINGS BILLS

IRA PROVISIONS IN BIPARTISAN
RETIREMENT SAVINGS BILLS ARE CRITICAL
Retirement Savings Bills (H.R. 10 and S. 742) Strengthen IRAs. Bipartisan retirement savings bills that
have been introduced in the House (H.R.10) by Representatives Rob Portman (R-OH) and Ben Cardin (DMD) and in the Senate (S. 742) by Senate Finance Committee Chairman Charles Grassley (R-IA) and
Ranking Member Max Baucus (D-MT) include provisions that would increase retirement savings by
updating and improving the rules governing IRAs. Either or both H.R. 10 and S. 742 include the following
important IRA changes:
Increasing the annual IRA contribution limit from $2,000 to $5,000;
Allowing individuals age 50 and older to make additional IRA catch-up contributions;
Expanding eligibility to deduct IRA contributions;
Eliminating the marriage penalty for Roth IRAs; and,
Allow tax-free withdrawals from IRAs for gifts to charities.
Raising the IRA Contribution Limit to $5,000 Will Increase Retirement Savings. The IRA has proven
effective at generating retirement savings. Nonetheless, the maximum annual IRA contribution today is
$2,000, just as it was in 1982. In fact, if the IRA contribution limit had merely been indexed for inflation
from the time it was enacted (as most provisions of the tax code are), the contribution limit would be
over $5,000 today. The tools that Americans need to save should be getting stronger, not weaker, with
time.
Catch-Up Contributions Will Help Those Who Have Fallen Behind in Retirement Savings. Reports
show that far too many Americans, particularly those in the baby boom generation, have not saved
enough to ensure a financially secure retirement. For some, a meaningful savings vehicle (like an IRA or
401(k) plan) was simply not available during all of the years of their working lives. For others, adequate
retirement savings contributions may not have been made due to other urgent priorities, such as
financing college education. Compounding the problem is the fact that millions of Americans, including
women who took time off to raise children, have moved in and out of the workplace. Data clearly show
that retirement savings increases significantly as an individual gets closer to age 65. Now, with more and
more Americans focused on saving for retirement, a catch-up contribution will allow them to put away
the extra money that they will need. The permanent catch-up proposal in the Senate bill that would
allow Americans over age 50 to contribute 150% of the otherwise applicable limit to their IRAs is a good
start in helping those approaching retirement prepare for their future.
Accelerating Deductible IRA Eligibility Will Provide More Working Americans with a Meaningful
Savings Incentive, Before It Is Too Late. Today, deductible IRAs are available to taxpayers with income
below certain statutory levels. For example, in 2001, fully deductible IRAs are generally available to
individuals with income below $33,000 and couples with income below $53,000. These income limits are
scheduled to increase modestly over the next several years. The Senate bill would accelerate this phasein, thereby providing more Americans with access to an important savings vehicle sooner. For many
moderate-income Americans, access to a deductible IRA could mean the difference between getting
started in saving for a secure retirement today or falling further behind in preparing for retirement.
Eliminating the Marriage Penalty in Roth IRA Eligibility Rules Is Fair. Current law imposes income limits
on eligibility to contribute and convert to Roth IRAs. Roth IRA income limits involve huge disparities
between the treatment of single individuals and married couples, resulting in one of the most severe
marriage penalties in the federal tax law. The Senate bill would eliminate these marriage penalties with
respect to Roth IRAs. While the proposed change in Roth IRA eligibility is modest when compared with
other comprehensive proposals to eliminate the marriage penalty from the tax code, it is important to
eliminate this egregious example of a marriage penalty from our retirement savings incentives as soon
as possible.
Tax-Free IRA Withdrawals for Gifts to Charity Should Be Permitted. Currently, if an individual
withdraws amounts from his or her IRA for charitable purposes, the IRA owner may not be able to
deduct the entire charitable contribution. The Senate bill would allow tax-free withdrawals from IRAs for
gifts to charity.
America’s savings rate is at a historic low. The low savings rate threatens our continued economic
growth by limiting investment capital and keeping an upward pressure on interest rates. Increasing
retirement savings should be a critical component of any strategy to increase national savings.
The need for better retirement savings incentives is something on which most Americans can agree. For
example, a recent, bipartisan poll commissioned by the Savings Coalition of America has indicated that
88 percent of all Americans (including 92 percent of Republicans and 85 percent of Democrats) favor
proposals to raise the IRA contribution limit from $2,000 to $5,000. Similarly, the ability to make catchup retirement contributions would provide the baby boom generation a popular way to make up for
past savings shortfalls --an opportunity that is particularly important for women who temporarily left
the workforce to care for children.
Each day of delay puts working Americans further behind in being able to provide for their retirement.
Bipartisan retirement savings proposals that include substantial IRA expansion should be promptly
enacted.