A plan that would significantly expand individual retirement accounts is expected to be diluted during upcoming negotiations between lawmakers and the White House.
Senate Finance Committee Chairman William V. Roth, R-Del., said he is willing to extend the phase-in period for expanded IRAs if it would encourage the administration to reach a deal on tax reform legislation.
"I have significantly reduced my IRA provision," Sen. Roth said in a written statement Monday. "I would hope others would be willing to show the same kind of flexibility." A spokeswoman for Sen. Roth said she did not have details of the plan.
Sen. Roth also proposed withdrawing a Republican plan to reduce the corporate capital gains tax. The two proposed changes would reduce the cost of tax reform, making the package more appealing to President Clinton.
Tom Ochsenschlager, tax partner in Grant Thornton's Washington office, said the industry would still benefit from Sen. Roth's IRA plan, even if it contains a longer phase-in period.
"It's still a tremendous benefit," he said "For banks it would greatly increase the appeal of these investments."
Under a plan passed by the Senate last month, limits for fully deductible contributions to IRAs would double to $80,000 by 2004 for married couples. It's unclear what Sen. Roth's new timetable is, but his spokeswoman said the slower phase-in would cut the 10-year cost of IRA expansion to $13 billion from $23 billion.
Industry lobbyists said they would be disappointed by a delay. However any improvement in IRA rules would be welcome, given that no major changes have been made to the savings vehicle since 1986. "When it comes to boosting IRAs we say the sooner the better," said Donna Fisher, director of tax and accounting at the American Bankers Association.
Left intact are other IRA changes included in the House and Senate bills. Both plans would create a new "back-ended" individual retirement account, which would allow investors to withdraw earnings tax-free. Contributions, however, would be taxed.
The Senate plan also would allow penalty-free withdrawals from traditional IRAs by unemployed people. Also, homemakers would be allowed to contribute up to $2,000 tax-free, even if a spouse participates in an employer-sponsored retirement plan.