A new type of 401(k) plan allowing money to be
withdrawn tax-free would be created and numerous major changes
would be made to other individual retirement arrangements under
legislation proposed by a key Republican senator.
Sen. William Roth, R-Del., chairman of the Senate Finance
Committee and sponsor of the popular Roth IRA, said Friday the
Retirement Savings Opportunity Act would "address the issue of
baby boomers and others not having enough savings" for retirement.
As Congress and President Clinton debate how to ensure Social
Security remains solvent, lawmakers are examining dozens of options
to enable more people to guarantee their own retirement incomes.
Foremost among the bill's provisions would be a so-called "Roth
401(k)" plan that would differ from regular 401(k) plans in a
crucial way: the earnings on contributions while made on an
after-tax basis would be tax-free when they are distributed, much
like the Roth IRA.
The rules for a Roth IRA would also change. The income limit on
people wishing to convert a traditional IRA to a Roth would rise
from $100,000 to $1 million and all income limits would be
eliminated for people wishing to make a full annual contribution.
The measure would make these other changes:
The maximum IRA contribution limit would rise from $2,000 to
$5,000 per year and go up annually in $100 increments. Workers 50
and older could contribute up to $7,500.
The maximum pre-tax contribution to a regular 401(k) plan would
increase from $10,000 to $15,000; those 50 and older could
contribute as much as $22,500 a year.
For people who are active in a workplace pension plan, the
amount they can contribute to traditional IRAs is limited by the
amount they earn. Roth's bill would end all income limits.
There are several other provisions dealing with matching
contributions by employers and laws governing certain pension
plans. Roth is expected to introduce the measure in the Senate in a