January 16, 1995
TO: BOARD OF GOVERNORS No. 9-95
FEDERAL LEGISLATION COMMITTEE No. 3-95
FEDERAL LEGISLATION MEMBERS No. 3-95
MEMBERS - ONE PER COMPLEX No. 5-95
GOVERNMENT AFFAIRS IRA ISSUES GROUP
RE: NEW ROTH-BREAUX IRA BILL INTRODUCED IN SENATE
______________________________________________________________________________
On January 4, Senators William Roth and John Breaux introduced a new version of their
1994 bill designed to restore the universal availability of a fully tax deductible Individual
Retirement Account. The bill is S.12, the "Savings and Investment Incentive Act of 1995."
Like the 1994 bill, S.12 will permit a choice between tax-deductible contributions to a
traditional IRA, or contributions to a new type of IRA, called an IRA Plus Account, under
which contributions are not deductible, but earnings will not be subject to income or penalty
taxes when withdrawn if they are allocable to contributions held in the IRA for at least five
years. The bill contains provisions on converting existing IRAs into IRA Plus Accounts. The
bill will also permit non-wage-earning spouses to make a $2,000 contribution to either kind of
IRA. S.12 will waive the 10% penalty tax on early withdrawals (generally those before 59½ for
the front-loaded IRA or within the 5 year period for the new back-loaded IRA) if the funds are
used for higher education expenses, first-time home purchases, financially devastating medical
expenses, and during periods of long unemployment. Similar penalty-free withdrawal
provisions will apply to 401(k) plans and 403(b) plans.
A major difference between S.12 and the 1994 bill is that only beginning in 1999 would
tax deductible IRAs be available regardless of income. Until then, the present income ceilings
on eligibility for fully deductible IRAs applicable to individuals covered by other retirement
plans would be increased each year as follows:
Individuals Couples
Present law $25,000 $40,000
1995 $50,000 $65,000
1996 $75,000 $90,000
1997 $100,000 $115,000
1998 $125,000 $140,000
1999 and after no limit no limit
Further, under S.12 an individual’s eligibility for a fully deductible IRA would be
determined without regard to whether his or her spouse is covered by another retirement plan,
and the IRA deduction limit would be integrated through a "last-dollar" set-off with the elective
deferral limit for 401(k) plans, 403(b) plans, and salary reduction SEPs.
It is expected that a comparable bill will be introduced in the House of Representatives
in the near future by Congressman William Thomas.
A copy of the bill and Congressional Record statement is attached.
We will keep you informed of further developments.
Julie Domenick
Senior Vice President
Legislative Affairs
Attachments