Lifetime Savings Accounts (LSAs), Retirement Savings Accounts (RSAs), and Employee Retirement Savings Accounts (ERSAs) Proposal

The proposals, as outlined in the FY 2005 Budget, can be summarized as follows.

* The most flexible of the accounts is the Lifetime Savings Account (LSA). A person of any age or income level can open this account and savings can be used at any time for any purpose. While contributions to a LSAs must be made on an after-tax basis, the earnings and withdrawal of funds from the account are tax-free. The maximum amount that can be contributed to an LSA is $5,000 annually, and this amount would be indexed to inflation. Individuals who currently have Coverdell Education Saving Accounts or Qualified Tuition Plans would have the option of rolling these accounts into an LSA.

* Bush?s proposal also calls for Retirement Savings Accounts (RSAs), which would be similar in structure to current Roth IRAs. Like LSAs, contributions to these accounts would be on an after-tax basis, but would growth tax-free. Individuals would be able to save up to $5,000 in a RSA per year and withdraw funds at age 58. Once these accounts were implemented, traditional IRAs could remain open but could no longer accept contributions. Traditional IRAs could be rolled into RSAs, however, the accountholder would be subject to income taxes on the amount transferred.

* The final savings proposal is to consolidate various employer-provided defined contribution plans into one savings vehicle?Employee Retirement Saving Accounts (ERSAs). These accounts would be designed to consolidate current employer-based retirement plans. The maximum amount that could be contributed to this account start at $12,000 a year and rise to $15,000 a year by 2006.