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New Saving Accounts, Now Four Types

Contributed by mm | February 10, 2004 12:07 PM PST

A while ago I blogged about the new saving accounts proposed by the Administration. Now actually there are four types of saving accounts in proposal now. Here is my summary based on an excellent FoxNews primer:

RSA: Retirement Savings Account

RSA resembles Roth IRA. Everyone can contribute $5,000/year to RSA with after-tax money. There is no income limitations. All withdrawal after age 58 and upon death or disability of owner is tax-free.

If RSA is passed, existing IRAs will be frozen. They can be converted to RSA and tax applies for traditional IRAs.

LSA: Lifetime Savings Account

One can contribute $5,000/year to LSA with after-tax money. Money will grow tax free and any money can be withdrawn from LSA any time without penalty.

ERSA: Employer Retirement Savings Account

ERSA is an upgrade of 401(k) and other employer-sponsored retirement plans. Maximum annual contribution is $12,000 (or $14,000 for 50 and up), including company match. (The FoxNews article reported the maximum contribution is $41,000, the same as 401(k), which appears to be wrong. Fool.com also has an explainer why ERSA may not be good news for 403(b) account holders.)

IDA: Individual Development Account

This account is specifically for low-income individuals (AGI < $20,000 for single filers, $30,000 for Head of Household and $40,000 for married filing jointly). Contributions receives a dollar-for-dollar match of up to $500/year from government. For qualified expenses (buying first home, tuition, etc.) IDA money can be withdrawn at any time, but will forfeit all the matching money if withdrawn before age 61.

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