It is always important to have current information about governmental proposals regarding our financial needs. This year's Congressional Session is looking at a new proposal to simplify tax-deferred savings accounts for retirement and education. This modified plan includes three main savings vehicles: Lifetime Savings Accounts; Retirement Savings Accounts, and Employer Retirement Savings Accounts. These changes could have a large effect on an individual’s ability to save for retirement.

• Lifetime Savings Accounts

Lifetime Savings Accounts would allow an individual to save up to $5,000 a year in an account with benefits similar to a Roth IRA. Individuals would pay tax on their contributions into these accounts but would not pay tax on any of the gains earned inside them. This proposal includes an option for individuals to withdraw money from these accounts at any time without paying tax. Many insurance companies and mutual fund companies have expressed dissatisfaction with this portion of the proposal. Because of the Roth-like tax treatment, flexibility, and lack of restrictions, individuals would most likely contribute to lifetime savings accounts before other traditional retirement investing accounts. This is of great concern for the insurance industry as individuals may spend less on insurance products like annuities.

• Retirement Savings Accounts

In addition to Lifetime Savings Accounts, Retirement Savings Accounts offer individuals an opportunity to save additional funds in a Roth-like account. Up to $5,000 a year could be invested into a retirement savings account. Roth-like implies that these accounts are tax-free; you never pay tax on the gains of the account. Currently, the Roth limit is $3,000 for those under 50. This would allow an investor to put away more money than is currently allowable in a tax friendly and much more flexible account.

• Employer Retirement Savings Accounts

401K’s are expected to be replaced by Employer Retirement Savings Accounts. This will not affect individual investors as much as it will individual employers. This type of account is designed to offer increased simplification to employers offering 401(k)s.

These proposed accounts are designed to be available to all individuals regardless of income. With current IRA accounts there are income limits. In order to qualify to contribute to a Roth IRA or take a tax deduction for a contribution to a Traditional IRA, an individual must fall under the income ceilings for those accounts. The proposed accounts would not have an income ceiling, allowing those who make more money to participate in the preferred tax treatment of retirement accounts. Many have expressed their displeasure claiming this open availability favors the rich. Due to this discontent and increased pressure from the insurance industry, it is unlikely these retirement savings changes will be passed during this session of Congress. Barring a mass response from taxpayers nationwide to their Congressional Representatives, we could be talking about another similar proposal this time next year.