Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: WEDNESDAY, March 13, 1991                   TAG: 9103130286
SOURCE: Cox News Service
DATELINE: WASHINGTON                                LENGTH: Medium


Backed by a bipartisan majority of his Senate colleagues, Texas Democrat Lloyd Bentsen introduced legislation on Tuesday to "bring the IRA out of retirement."

More than 70 of the 100 senators have already signed onto the "Super IRA" bill to restore and expand the fully deductible Individual Retirement Account - a popular tax break for savers that was severely restricted by the 1986 tax reform.

Like the original IRA, the Senate measure would allow all Americans to set aside $2,000 a year in a special account that is shielded from federal taxes until funds are taken out.

However, instead of having to wait until retirement to make withdrawals from their IRAs, taxpayers of any age could also take out money to pay for a first home, college tuition or "devastating medical expenses" without incurring penalties.

Regardless of their incomes, all taxpayers could get this immediate $2,000-a-year exemption - $4,000 for couples filing joint returns - for funds put into traditional IRAs. The Senate bill would also create a new type of non-deductible IRA where taxes would be paid on the initial deposits but on none of the income if no earnings are withdrawn for five years.

The expanded IRA would also allow "inter-generational" transfers. For instance, grandparents could make penalty-free withdrawals from their accounts to pay for a grandchild's college tuition or parents could take out IRA funds for a down payment on a first home for their offspring.

"This program is flexible and it literally brings the whole family together to meet these critical needs," said Sen. William Roth, R-Del., the bill's principal co-sponsor.

Bentsen is chairman of the Finance Committee and Roth is a ranking minority member, so the legislation is ensured a quick hearing. With 71 sponsors, the bill appears to have a veto-proof majority in the Senate.

However, the restoration of the IRA depends largely on how its proponents propose to pay for it. A budget agreement between Congress and the president requires that any tax reduction be countered by a corresponding increase in taxes or decrease in federal spending.

Bentsen said these conditions would be met - making the new IRA "budget neutral" - but he would not specify how much restoring the IRA would cost in lost tax revenue.

Steve Hart, a White House aide, said, "We're concerned that this bill, as proposed, would cause a large loss of revenue."

President Bush's similar "family savings account" would be available only for families with incomes below $125,000 a year.

The "Super IRA" also faces opposition in the House of Representatives, where critics have charged that the benefits go only to the wealthy and middle class.

Rep. Dan Rostenkowski, D-Ill., chairman of the House Ways and Means Committee, is one of those against it. "He doesn't think we should be spending money on tax breaks, least of all not for tax breaks for affluent people," a Rostenkowski aide said.

The original, fully deductible IRAs were first approved in 1981. However, in 1986, an extensive tax-reform package limited the IRA exemptions to higher-income taxpayers not covered by company pensions and to lower-income taxpayers, even if they are covered by private pensions.

 by CNB