Roth IRA Tax Reform

I like the ideas offered here by Cato’s Chris Edwards and Ryan Bourne. They discuss ways to simplify retirement savings accounts, and reforms that have been made to the similar systems in Britain and Canada. Then they explain the benefits of Universal Savings Accounts, a reform to the saving system being offered by Congressman Dave Brat and Sen. Jeff Flake.

Canadian- and British-style savings accounts may be coming to America. Sen. Jeff Flake (R-AZ) and Rep. Dave Brat (R-VA) have introduced companion bills — S. 323 and H.R. 937 — to create Universal Savings Accounts (USAs).²²

Under the legislation, anyone 18 years of age or older could open a USA and contribute up to $5,500 in cash per year after-tax. Account holders could make withdrawals tax- and penalty-free at any time for any reason.

USA funds would be invested in bonds or equities, and would grow tax-free. USAs would allow individuals to decide what to use their savings for and when, without Congress micromanaging their choices, as it does with current tax-preferred savings accounts.

The Flake-Brat legislation proposes USAs as an additional vehicle alongside existing saving plans. However, a goal of current Republican tax reform efforts is simplification. As such, policymakers should consider replacing a number of savings vehicles with large USAs. We suggest creating USAs with an annual contribution limit of $10,000 or more, combined with the elimination of traditional IRAs, Roth IRAs, and Coverdell Education Savings Accounts (ESAs).²³

Traditional IRAs generally allow a tax deduction for contributions and then taxation of withdrawals in retirement.²⁴ The bulk of assets in traditional IRAs come from rollovers, mainly from 401(k)s.²⁵ Roth IRAs allow for after-tax contributions and tax-free withdrawals during retirement. The combined annual contribution limit for IRAs is $5,500.²⁶ ESAs have an annual contribution limit of $2,000 per child, tax treatment similar to Roth IRAs, and complex rules on withdrawals. All three types of accounts have income limits, penalties for nonqualified withdrawals, and myriad other rules.²⁷

For savers, USAs are superior to these accounts because they are simpler and more flexible. USAs could be used for retirement, education, or saving for any other purpose.

Rep Brat Encouraging Savings through his Universal Savings Account Act

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E.J. Smith - Your Survival Guy

Preparing your investments and family for when disaster strikes.

E.J. Smith is the Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH, where he completed course-work in Practical and Defensive Handgun, Conceal Carry Pistol, Shotguns, Precision Scope Rifle and Kidnapping Prevention. E.J. plays a Yamaha Recording Custom drum set with Zilldjian cymbals. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com. Sign up here to receive all the best content from Richardcyoung.com each week.