201 The Proposed Lifetime Savings Account

Sometimes I have to work a bit to remember what it was like to be 35. Although we had a savings account, it was really a “put and take” account. If we deposited our tax refund check in May, it was a guarantee we’d need four tires in July, or the summer storms would rip limbs out of the oak tree in the front yard requiring $400 of tree surgery. Vacations? A week at my mother’s farm. So I try to relax about the way my kids save and spend their money. They are no worse or better than I was at their age.

The Bush Administration has proposed a change to the Roth IRA plan and a new Lifetime Savings Account. Both accounts would offer tax-free withdrawals with contribution limits of $7,500 each with contributions to both allowed for a total of $15,000 per person. However, Lifetime Savings Accounts would have fewer restrictions both for contributions and withdrawals. For detailed information on the Lifetime Savings Account, see link. As I understand it, the dividends will not be taxed and there will be no withdrawal penalty.

Americans have one of the lowest savings rates in the world. I don’t know that 35 year olds will suddenly start doing a better job than I did, but maybe it is worth a try?