How to Save with IRAs
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 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 you don’t have it, how are you 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.
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 that.
But overall, these are bills for the upper, middle, investor class citizens. There should be something for the
smaller investor also. Lets hope.