July 26, 2000

IRA limit increase is well overdue

Despite enjoying a degree of prosperity almost unfathomable even a generation ago, Americans still do not save nearly enough for retirement. Any encouragement the federal government can provide for savings therefore should be welcomed. Last week the House took a small step to encourage more retirement savings by voting to raise contributions limits on IRA and 401k accounts.

It's about time. The IRA limit has been stuck at $2,000 since 1981; in purchasing power $2,000 today is worth about half what it was then. 401k limits similarly have been stuck in place for years.

The new limits &emdash; $5,000 a year for IRAs and $15,000 for 401k plans &emdash; certainly help to correct the problem of inflation eating away at prudent retirement savings incentives. But the House still missed the mark by not indexing the new limits to inflation.

One might also reasonably ask, why have limits at all? It is safe to say that for most Americans it would be impossible to save too much for retirement. As a matter of national policy, shouldn't we want as many people as possible to be self-sufficient financially in retirement? Of course. The limits exist at all for two reasons:

1) Congress' bipartisan, insatiable greed for tax revenue. Few things bug a congressman more than knowing you haven't sent a buck to Washington for him to decide how it should be spent.

2) Class warfare. Too many in Washington worry that someone, somewhere, will be too financially successful in life and, horror or horrors, save or invest that money someplace other than the IRS.

There's an even still bigger issue concerning tax-sheltered retirement accounts: The rules are too doggone complicated. No one should need a CPA to explain the differences among and different rules for IRAs, Simple IRAs (which arenÕt), 401k, Simple 401k (which aren't), and Roth IRAs. If Congress really were serious about encouraging retirement savings, it would sweep away the assorted age, income, and contributions restrictions on the various retirement accounts now available.

Nevertheless, when Congress acts to allow Americans to keep more of their money out of the IRS' hands, one shouldn't argue too much about it. Let's hope the limit-lifting legislation, clearly crafted out of election-year motives, swiftly clears Congress and is signed by President Clinton.