SEPT. 18, 2000

Money Matters
New Bill Would Raise 401(k), IRA Contribution Limits

The Senate Finance Committee has approved a bill that would raise annual contribution limits for 401(k) plans and IRAs. "The work we do today will go a long way toward helping Americans everywhere prepare for secure retirements," said Senate Finance Committee Chairman William Roth.

The bill would increase contribution limits for 401(k) plans from $10,500 to $15,000 per year, and the limit for IRAs would increase from $2,000 to $5,000. A "catch-up" provision would allow people age 50 and over to contribute up to $7,500 annually to an IRA. Also, a new type of 401(k) plan would, like the Roth IRA, allow people to contribute after-tax dollars and then withdraw them tax-free.

A similar bill has already passed the House by a wide margin. President Clinton, though not specifically threatening a veto, has expressed concern that the bill does not do enough to help lower-income people who do not have access to 401(k) plans or IRAs. However, Roth did add a tax credit of between 5% and 50% for up to $2,000 in contributions to qualified retirement plans by single taxpayers earning $25,000 or less and married couples earning $50,000 or less.