September 24, 2000. Who says the rich get richer? Everybody. Especially the House of Representatives
who passed a bill which is the retirement savings bill, sponsored by Reps. Rob Portman, R-Ohio, and Ben Cardin,
D-Md. The vote was 401 to 25.
What does this bill represent? These bills would raise the maximum IRA contribution to $5,000
per person and $10,000 per couple, compared to $2000 and $4000.
The maximum you could invest in a 401k each year would rise to $15,000, up from $10,500. Traditional
pension plans could be funded with enough to pay pensions of up to $160,000 a year, up from $130,000.
If you are in this tax bracket, it's a fabulous change. You'd be able to tax deduct more of your
savings that you can today. Nice self serving raise huh? But these deductions won't be spread equitably over the
work force. The bills primarily help the people who can afford to put more than the current maximum into their
plans.
Several years ago, there were IRA deductions on about four percent of individual tax returns.
Half showed the maximum investment, according to a U.S. Treasury estimate, so the other half invested less. Of
the workers with 401 k's , no more than six percent are contributing the maximum.
It seems reasonable that maximum retirement contributions should be increased even though most
of the tax savings go to higher income people. The question I have is why doesn't Congress have it go according
to the percentage of what the higher income are going to save? The issue of savings plan for modest income people
at a higher rate could benefit them also and encourage them to save more of their income. The government questions
this on account of modest income persons aren't saving the maximum on their 401 k plan. But, the higher income
people have put in the max. On the other side of the coin, if I don't have it, how am I going to save it? Easy,
coming out of your salary you will not miss it. The difference between taking four percent and 16 percent, for
an average income level, was a modest $60 a week. At the beginning of retirement it could add up to hundreds of
thousands of dollars.
Will Congress add to this plan? It's hard to say, although presidential candidate Al Gore claims
he will do something about it, but don't count on it for now.
Small business leaders have to show some support for their employees. Many do not offer a 401
k plan because it would be too expensive with more time and book keeping. Some excuse! It will take government
to put pressure on small business to comply. Don't count on this either.
But overall, these are bills for the upper, middle, investor class citizens. There should be
something for the smaller investor also. Lets hope so.
George
