The budget proposed by President Bush this week includes four new types of savings accounts that could streamline retirement saving for Americans and offer new, tax-free ways to sock away money for a wide range of goals.
Similar proposals were shelved last year amid concerns that they would curtail tax revenues at a time of huge federal deficits. But administration officials say they are hopeful the second attempt will succeed.
"The administration intends to work closely with Congress to see them enacted," said Tara Bradshaw, spokeswoman for the U.S. Treasury Department.
Here is a look at what's on the table:
Question: What's been proposed and why?
Answer: Bush wants to create a new, all-purpose tax-free account that could be used for everything from college savings to emergency expenses. He also wants to replace a variety of retirement-oriented tax-free savings plans, from 401(k)s to individual retirement accounts, with two new types of accounts that would merge and simplify the existing thicket of retirement-account rules. Bush also wants to create a standardized version of an existing savings plan aimed at low-income workers.
Q: Why are some in Congress opposed?
A: Critics say the changes would disproportionately benefit the wealthy, who have the most money to save and who would get the biggest benefit from moving assets into tax-free accounts. Proponents counter that the accounts would encourage savings at a time when the national savings rate is lamentably low.
Q: What are the new plans called, and what would they replace?
A: Here's the lineup:
* Retirement savings accounts would replace all types of individual retirement accounts.
* Employer retirement savings accounts, a reworked version of the 401(k), would replace employer-sponsored plans such as 401(k), 403(b) and 457 plans.
* Lifetime savings accounts would allow anyone, regardless of income, to save and withdraw money tax-free for any purpose. These are new.
* Individual development accounts, a little-known matched savings plan for low-income workers, would become nationally available and standardized.
Q: Why does Bush want to eliminate the 401(k)?
A: The 401(k) would be replaced by employer retirement savings accounts, or ERSAs, but it's more of a renaming than an actual replacement. It's actually the other half-dozen, lesser-known retirement savings plans, such as 403(b)s and 457 plans, that would be eliminated and merged into the new plan.
