| The minimum wage
bill passed by the House of Representatives last week called for gradually raising the
total maximum employer and employee annual contribution to 401(k) and 403(b) plans to
$40,000 (from $30,000), as well as a host of other changes.
However, the White House has indicated Clinton will veto
the minimum wage bill because of other concerns with the law.
The bill calls for gradually raising the individual maximum
contribution limit to $14,000 per year by 2004, from the current $10,500. A Senate
bankruptcy bill passed early this year calls for raising the contribution limit to
$15,000.
Last year, in a move to keep up with inflation, the IRS
raised the individual contribution limit to $10,500, from $10,000, for the 2000 tax year.
Acknowledging workers' frustrations with the inability to
transfer retirement money between different types of defined contribution plans, the
minimum wage bill includes language allowing such transfers. Workers would be able to
transfer money among 401(k), 403(b) and 457 plans, said Brian Besanceney, a spokesman with
Rep. Rob Portman, R-Ohio.
Additionally, the bill includes language to allow all
defined contribution plan participants to make catch-up contributions. Currently only
403(b) participants can make these contributions. According to the legislation, by the
year 2004 workers over the age of 50 could contribute an additional 50% above the maximum,
or $7,000 a year, to their account to make up for missing out on full contributions in
earlier years.
The bill also sets one common maximum contribution level
for 403(b), 457, 401(k) and SIMPLE 401(k) plans.
The minimum-wage bill also calls for granting Roth IRA-type
protections to after-tax contributions to 401(k) and 403(b) plans. In a Roth IRA, an
individual contributes after-tax money. That money grows tax-deferred and is tax-free on
withdrawal if all conditions are met.
For folks with 401(k) or 403(b) plans, if these provisions
pass, after-tax contributions would enjoy similar protections. Money would go in after
taxes. It would grow tax-free and withdrawals would be tax-free.
Separate Move on IRA Contribution Limits
Concerned that current IRA contribution limits prevent
Americans from saving enough for retirement, House Republicans say they plan to introduce
legislation next month to raise these limits to $5,000 per person per year.
The increased contribution limits would likely be phased in
over several years, Congressional staffers say.
House speaker Dennis Hastert, R-Ill., proposed raising the
limits last week.
The increases would likely apply to tax-deductible and
non-tax-deductible contributions to traditional IRAs, as well as contributions to Roth
IRAs, a spokesman with the House Ways and Means Committee said.
While no formal legislation has been crafted yet, it's
likely the GOP will use similar language included in last year's failed tax bill as a
starting point, said Trent Duffy, spokesman with the House Ways and Means Committee.
Raising IRA contribution limits currently enjoys
bi-partisan support. Last year 50 Congressional Democrats signed on to the legislation.
Ways and Means Committee Chairman Bill Archer, R-Tx.,
"feels strongly that we need to do whatever we can to reverse American's negative
savings rate," Duffy said.
The limits were included in the 1999 tax bill, which was
vetoed by President Clinton for other reasons.
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