March 19, 1997
Washington, D.C. -- Legislation to expand the benefits of Individual Retirement Accounts (IRAs) would help small business and dramatically improve the dim personal savings rate in the United States. The bill will allow for expansion of current IRAs, and provide broad savings incentives to all Americans, according to the National Association for the Self-Employed (NASE).
In testimony today before the House of Representatives Committee on Ways and Means, NASE President Bennie L. Thayer supported H.R. 446, The Savings and Investment Incentive Act of 1997. The bill would broaden the scope of current IRAs by removing many current restrictions on fully deductible IRAs. The bill would also allow the tax-sheltered accounts to be used without penalty for education, small-business startups, first-time home purchases and during long-term unemployment.
H.R. 446 would also increase the contribution limit for full-time homemakers from the current $250 to $2,000 annually, and would create a new account called an IRA Plus. The IRA plus would allow an individual to contribute $2,000 annually, paying taxes on their contributions, but not on the interest earned by the account. Individuals could make tax free withdrawals from the account after age 59 1/2.
"Savings in this country has become increasingly worse over the years. It is currently at its lowest rate since World War II," said Thayer. "The lack of availability of IRAs is one of the keys to this decline, and I applaud Reps. Bill Thomas, R-Calif., and Richard Neal, D-Mass., for acknowledging this dilemma, and introducing the Savings and Investment Incentive Act of 1997. This bill will make IRAs more universal so that all Americans can have access to a significant savings vehicle for their retirement."
The bill would significantly benefit small business people as well, Thayer noted. "Small business people typically do not save enough for their retirements. Over 60 percent of our members, and thousands of other small business people, have saved less than $50,000 for their retirement -- 40 percent have saved less than $20,000. And with the average length of retirement today being 15 years, it doesn't take long to figure out that these individuals will need to save significantly more for their retirements.
"The eventual increase in personal savings that this bill will create will also lead to an increase in available funding for small businesses -- the more savings, the more money to loan to small businesses," said Thayer.
The Savings and Investment Incentive Act of 1997 will likely restore the competitive IRA market from the early 1980's. Prior to 1986, when tax-advantaged IRAs were made available to everyone, the IRA market featured numerous entities -- banks, mutual funds, brokerage houses, insurance companies -- competing to "sell savings." After the Tax Reform Act of 1986 however, aggressive IRA marketing declined because of the new restrictions. Subsequently, eligible account holders dropped their IRA contributions by forty percent.
"We need to restore this competitive market and get people refocused on the importance of savings. The Savings and Investment Incentive Act of 1997 will do this," Thayer added.
"Increasing the eligibility of IRAs for Americans is not only good public policy, but it is essential to our personal futures, and the future of America," concluded Thayer. "Personal savings provides the economy with the investment capital it needs to grow."
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