Posted on 02/01/2003 8:50:34 PM PST by DeaconBenjamin
The new Lifetime Savings Account unveiled by the Treasury Department yesterday will be the most flexible tax-advantaged savings plan available in the US and could prove to be a boon for the mutual funds industry, experts said yesterday.
The accounts will allow anyone, regardless of age or income, to contribute $7,500 a year and make penalty-free withdrawals at any time. Contributions will be made after tax, but earnings will accumulate tax-free. Withdrawals will also be tax-free.
The most significant change is that there will be no restriction on what the withdrawn savings can be used for. Currently there are non-retirement saving plans available for college education - including a state-sponsored college savings plan - and healthcare.
Britain has had a scheme similar to the Lifetime Savings Account in place since the late 1980s and by last year savers had more than $110bn invested in the accounts, which have become a lucrative source of fees for the financial services industry.
Lifetime Savings Accounts would be administered by a bank or a person approved by the Inland Revenue Service, the Treasury said. More than 60 per cent of equity fund assets are held in tax-deferred retirement accounts (such as traditional IRAs), which require recipients to pay income tax on withdrawal.
Fidelity, the leading mutual fund firm and largest provider of workplace retirement savings plans, welcomed the new proposal. "Through tax-advantaged savings vehicles, the fundamental concept of savings is more attractive," it said.
Avi Nachmany, director of research at Strategic Insight, a New York-based mutual fund research company, said: "Every additional tax benefit creates an even greater incentive to be in equity funds."
The Treasury yesterday said it hoped the proposals would encourage saving by simplifying the rules. Pam Olson, Treasury assistant secretary for tax policy, said research suggested the new proposals would encourage savings by low- and middle-income earners who were deterred from using existing schemes because of the restrictions on withdrawals that qualify for tax relief.
But many industry experts said the Lifetime Savings Account - and its sister plan, the Retirement Savings Account - would benefit the rich and have little effect on national savings.
"This proposal and other aspects of Mr Bush's tax package are good for wealthy Americans, but it isn't clear this [latest] proposal will encourage a broad cross-section to increase their savings habits," said Gary Schatsky, former chairman of the National Association of Personal Financial Advisers.
William Gale, a tax specialist at the Brookings Institution in Washington DC, said the Lifetime Savings Accounts proposal was "heavily weighted" to higher-income households.
This is great news. Every little bit helps.You probably heard about taking the tax off dividends. But there's an even greater benefit you may not have heard about, the "Excludable Distribution Account." Check it out.^ This is gonna drive the RATS crazy!!
(For instance, I can't contribute to an IRA because I'm covered by a pension plan and I make over a certain limit.)
Really? WOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO!!!!!!!!!!!!!!
Anyone recall the klintoon era proposal to hit EVERY PRIVATE PENSION FUND with a "ONE TIME" 15% LEVY??
Fortunately, wiser heads prevailed?
THAT TIME!
There IS a better way!!
SIGN THE PETITION AT HTTP://WWW.VOTR.ORG. Then find out how you can do more to end America’s peculiar SPRING MADNESS.
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