Bush to Propose New Retirement Savings Approach

WASHINGTON —  The Bush administration, amid criticism that its dividend tax-cut proposal won’t benefit most Americans, is developing a retirement savings approach that would let more people withdraw earnings tax-free, among other benefits.

The new lifetime savings account is expected as part of a sweeping retirement savings package -- in the works for some time but now taking on more urgency -- that makes major changes to tax laws governing 401(k)s, individual retirement accounts and other plans.

The package is to be included in President Bush’s 2004 budget that he will send to Congress on Monday.

The administration hopes the changes will encourage more employers to offer retirement savings plans and will induce more people to participate in workplace plans as well as set aside money on their own in other types of accounts, according to administration officials and pension and retirement experts familiar with the proposals. In return, with more people investing, a dividend tax cut has more broad-based appeal.

“You’re broadening the market,” said David John, a senior analyst at the Heritage Foundation, a conservative Washington think tank. “By doing it at the same time ... it gives you a double positive.”

Briefings on the proposals scheduled Wednesday for congressional aides and financial services officials were postponed until Monday, when Bush’s budget is released.

The administration is considering raising the $3,000 annual contribution limit for Roth IRAs, which were created for middle-income taxpayers who also are participants in employee-sponsored retirement plans, and also for younger workers in lower-income brackets who would prefer future tax-free withdrawals over current tax breaks.

Critics have argued that higher contribution limits benefit only the wealthy because lower- and middle-income taxpayers probably can’t afford to save thousands of dollars more each year.

Also on the table is the elimination of the income limit on Roth IRAs. Currently, the ability to contribute to a Roth IRA begins to phase out for singles earning more than $95,000 and married couples earning more than $150,000.

Traditional IRAs also could be phased out as part of the package being considered. That could help save the government money at a time when huge deficits are returning.

Unlike a Roth, taxpayers investing in a traditional IRA get an upfront tax break when contributions are made to the accounts.

To encourage more employers, particularly small businesses, to offer retirement plans, the administration is mulling over a major consolidation of tax laws now covering various plans, including the 401(k) and the 403(b), which can be offered only by public school systems and tax-exempt groups.

The goal would be to create simplified regulations for a universal retirement plan that cuts the government’s regulatory burden and is easier and cheaper for employers to offer and for workers to understand.