Washington — The Financial Planning Association has lent its support to a White House budget proposal that called for the creation of three new savings plans for saving for retirement, and that would reduce the number of defined-contribution plans to one.
“The FPA supports tax changes that will help Americans more easily reach their retirement savings goals,” said Gordon Bernhardt, CFP, CPA, and chairman of the FPA’s Tax Subcommittee. “We especially like the president’s proposals because of their simplicity and universality.”
President George W. Bush’s fiscal 2005 budget plan, submitted last month to Congress, included the creation of Lifetime Savings Accounts, Retirement Savings Accounts and Employer Retirement Savings Accounts to replace defined-contribution savings plans in the tax code.
The LSA would be an all-purpose savings account for augmenting retirement, health care, education and emergency needs with annual contributions of up to $5,000 in after-tax dollars. Individual contributions to RSAs, which would be dedicated solely to retirement savings, would be capped at $5,000 per year, similar to the contribution and distribution requirements for Roth IRAs. ERSAs would follow existing rules for 401(k) plans, subject to certain simplifications of the rules, with employees able to defer up to $13,000 annually in wages, with that amount increasing to $15,000 in 2006. Conversions from existing IRAs and defined-contribution plans to the new savings accounts are outlined in the budget proposal. Defined-benefit plans would be unaffected.
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