Congress is set to overhaul individual retirement accounts.
Last week both the Senate and House passed tax measures that would create a new type of IRA, reversing traditional account rules by letting people withdraw earnings tax-free. Contributions, however, would be taxed.
The Senate went a step further and voted to expand traditional IRAs as well.
"We're seeing really good leadership among Republicans and Democrats," said Donna Fisher, director of tax and accounting at the American Bankers Association. "These changes could revive interest in IRAs."
If enacted, the changes would be the first major alterations of IRA rules since 1986 when Congress imposed income limits on tax-deductible contributions. Bankers frequently complain that those restrictions dampened depositor interest in IRAs, Ms. Fisher said.
"When the limits came, IRAs were no longer as appealing to customers," she said. "They became more complex."
Under both the Senate and House plans, the new back-ended IRAs would have no income eligibility limit. Penalty-free withdrawals would be permitted five years after an account is opened if the investor is 59-and- a-half years old or wants to use the money for a first-time home purchase or education expenses.
The Senate plan also would allow penalty-free withdrawals by unemployed people.
The Senate proposal, pushed by Finance Committee Chairman William V. Roth, also would make traditional IRAs more attractive.
The Delaware Republican's plan would gradually double the income limits for tax-deductible contributions. By 2004, married couples earning up to $80,000 could make the full $2,000 tax-deductible contribution, while single people earning up to $40,000 would qualify.
Also, homemakers would be allowed to contribute up to $2,000 tax-free to an IRA, even if a spouse participates in an employer-sponsored retirement plan.
"These IRAs are designed to address our nation's need for savings and to provide families with as much flexibility as possible," Sen. Roth said.
Both the House and Senate plans also would create education investment accounts to let investors make tax-deductible contributions until a child reaches age 18. The Clinton administration has proposed a similar plan dubbed "KidSave."
Congressional aides have been meeting this week to work out differences between the House and Senate bills. Clinton administration officials also are expected to attend.
The Senate's expansion of traditional IRAs is expected to be accepted by the House when lawmakers put the finishing touches on a deal next week.
While the administration has been generally supportive of efforts to expand IRAs, enactment is uncertain because of disagreements with Republican leaders over other parts of the tax bill.
