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Roth
401k and Expanded IRAs Announced
Senator William Roth
(R-Delaware), along with senior Finance Committee Member Sen. Max Baucus
(D-Montana) introduced a bill that could encourage more Americans to save
for retirement.
Like a Roth IRA, individuals would be able to save for retirement by contributing after-tax money to their employer's 401(k) or 403(b). Current provisions only allow savers to invest pre-tax money into existing 401(k) or 403(b) plans. The proposed Roth
401(k) and 403(b) would then let retirement-age owners withdraw money
from their accounts 100% tax-free. Such a change would benefit primarily
younger account holders, who are more likely to have lower income tax
brackets now than they will upon retirement.
Senator Roth has been one of the strongest proponents of savings programs in recent history. And his sentiment is increasingly shared by many in Capitol Hill, especially with the need to shore up Social Security on many legislators' minds.
And the new Roth/Baucus
bill intends to do just that.
Current Individual Retirement Accounts (IRAs), including the 1 year-old Roth IRA, are limited to annual contribution caps of $2,000. This contribution limit has never changed since the introduction of the IRA, and has never been indexed to inflation. The Roth/Baucus legislation would immediately raise IRA contribution limits to $5,000 per year. This $5,000 limit, while a significant jump, is modest. If the IRA limit had been indexed for inflation from the beginning, that annual limit would now equal $4,930. IRAs have also had
income limitations since 1986. Wealthier Americans could not take advantage
of an IRA's tax-advantaged status if their income fell above a certain
level. Roth has been a staunch opponent of these ceilings, and proposes
in the new bill to eliminate all income level limitations from
traditional and Roth IRAs.
One of the most often-overlooked provisions of the legislation makes special consideration for adults who take time off from work to care for children or elderly parents. Workers that return
to the workforce will have increased contribution limits to help them
make up for lost time. Such changes would only apply to workers over the
age of 50 who return to work.
But the financial incentives that these retirement programs bring could
encourage many older working Americans to save more for retirement.
While on the subject of limits, 401(k) and 403(b) plans have been limited to annual contributions of $10,000. The IRS has been actively increasing this amount every year for inflation. But the proposed bill would shoot that limit up to $15,000. SIMPLE plans would also be affected, seeing their maximum annual contributions increase to $10,000. The
legislation also proposes to impact other types of investment vehicles.
Small business groups have often cited how difficult it is for businesses
with 10 employees or fewer to participate in company-sponsored pension
plans. The bill opens up pension possibilities for these firms, and expands
savings options for millions of American workers.
The Roth/Baucus legislation has just been presented for consideration. As with any bill, a forecasted date of passage is rarely accurate. However, many insiders believe the passage will be a smooth one. The success of the Roth IRA has seen a minor increase in savings rates. Plus, with the graying of the baby boomers, alternatives to Social Security are seen as important for the country's financial health.
 While the provisions
in this legislation are under consideration, you can still take advantage
of the Roth IRA.
To learn more about building your retirement nest egg with the Roth IRA or to order a FREE Roth IRA Special Report, contact SaveWealth today!
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Roth-ifying
the 401k
In
the legislation's most sweeping change, retirement-minded savers would
be able to select a new "Roth" 401(k) or 403(b) plan. 
Rep.
Bob Portman (R-Ohio), who co-sponsored another major proposal designed
to encourage savings, recently said, "We face a major retirement
challenge in this country. While we need Social Security reform, we need
to go well beyond that." 
