January 24, 1997
TO: BOARD OF GOVERNORS No. 5-97
FEDERAL LEGISLATION MEMBERS No. 2-97
PUBLIC INFORMATION COMMITTEE No. 3-97
RE: UNIVERSAL IRA BILLS INTRODUCED
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The "Savings and Investment Incentive Act of 1995"
On January 22, Senate Finance Chairman William Roth (R-DE) and Finance Committee
member John Breaux (D-LA) introduced S. 197, the "Savings and Investment Incentive Act of
1995" (also called the Super-IRA Bill), designed to restore the universal availability of fully tax-
deductible Individual Retirement Accounts. A companion bill,
H.R. 446, was introduced in the House on January 9 by Representatives Bill Thomas (R-CA)
and Richard Neal (D-MA).
Two kinds of accounts; penalty-free withdrawals. The proposal would 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 would be
nondeductible, but earnings would not be subject to income or penalty taxes when
withdrawn from an account that is at least five years old. The bill contains
provisions on converting existing IRAs into IRA Plus Accounts. The 10 percent
penalty tax on early withdrawals (generally those made before age 59½ for
traditional IRAs or within the five-year period for the new IRA Plus Accounts)
would be waived if the funds are used for higher education expenses, first-time
home purchases, or during periods of long unemployment.
Universal eligibility. Under the proposal, beginning in 2001, tax-deductible IRAs
would 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
1997 $50,000 $65,000
1998 $75,000 $90,000
1999 $100,000 $115,000
2000 $125,000 $140,000
2001 and after no limit no limit
-2-
Deductibility not affected by spouses pension coverage. Further, effective
immediately, an individuals eligibility for a fully deductible IRA would
be determined without regard to whether his or her spouse is covered by
another retirement plan.
Contribution limit indexed. The $2,000 annual contribution limit would be indexed for
inflation.
The "Family Tax Relief Act"
On January 21, Chairman Roth also introduced S. 2, the "Family Tax Relief Act," which
is part of the Republican Senate leadership agenda and therefore to be given priority
consideration in this Congress. S. 2 contains various tax cut proposals and includes most of the
provisions in the Roth-Breaux Super-IRA Bill.
However, S. 2 is different in important respects from the Super-IRA Bill. It would not
index for inflation the $2,000 annual IRA contribution limit, would not allow penalty-free
withdrawals for first-time home purchases, and would subject combined 401(k) and IRA
contributions to the 401(k) contribution limit. This IRA-401(k) coordination provision is
opposed by the Institute.
We will keep you informed of further legislative developments.
Matthew P. Fink
President