On Suggestions to the Super Committee

Several weeks ago, I sent a letter to Senator Rob Portman (R-OH), who not only is one of my senators, but he also was my former representative and is a member of the Super Committee. I focused on retirement, including Social Security by aiming at four points: 1) Establishing individualized, privatized Social Security accounts, 2) increasing money flow into the Social Security system, 3) maximizing avenues for individuals saving for retirement so they are less likely to seek government assistance, and 4) decreasing the tax rate for all businesses (employers).

With this focus on retirement, examining the current system of retirement accounts is part of the solution. For instance, the IRS currently limits IRA contributions based on income. To be honest, there is no good reason to limit retirement contributions in this manner. After all, Bill Gates has as much of a right to deposit into his retirement account and any middle class citizen.

With this in mind, I suggested these 11 points.

1)   Everyone 30 years or younger shall establish an individual, privatized account into which a 5% payroll deduction is automatically deposited. These accounts should be employee-directed, but with limited investment options to minimize risk.

2)  Everyone 30 years or younger shall have 1% withheld to be sent to the current Social Security fund.

3)  Employers deposit 4% payroll deduction into the employee’s individualized account.

4)  Employers also send 2% to the current Social Security fund.

5)  Raise the Social Security salary cap to $150,000.

6)  For all salaries above the salary cap, employees pay 1% to the Social Security fund.

7)  The employer’s obligation ceases at the salary cap.

8)  If they so choose, all employees can deposit into their approved IRA regardless of salaries: limited to $2000 into a traditional IRA and $5000 into a Roth IRA.

9)  If they so choose, an employee can submit participate in a 401K up to a maximum percentage established by the law. Whether or not an employer wishes to contribute to an employee’s 401K is a business decision.

10) Contributions to 401K, IRAs, and individualized Social Security accounts should have no cumulative bearing on the others, thus allowing n employee to build retirement wealth; therefore, no need for government assistance.

11) Employees currently over 30 years old continue to pay in accordance to the current system with the salary cap raised to $150,000 plus the additional 1% for income over $150,000 to the general fund.

I realize that each committee member is probably swamped with correspondence, so I do not have much hope that Senator Portman even saw my letter, let alone the committee doing something with the suggestions – but at least I tried.

On IRAs and Congress

Bear with me, as I have to set the stage on something that has been on my mind for a long time.

In a world where too many people think of Social Security checks as retirement income, Individual Retirement Accounts (IRAs) are a good thing. The Employee Retirement Income Security Act (ERISA) brought us traditional IRAs in 1974. The Taxpayer Relief Act of 1997 tossed Roth IRAs into the retirement planning mix. Because ERISA was primarily aimed at pension programs, various amendments through the years have given small business owners additional options as Simple IRAs and Simplified Employee Pension (SEP) IRAs.

Primarily for executives, 401k plans appeared in 1978 allowing employees to defer compensation. Various amendments through the years expanded 401k opportunities to more people. Bottom line is that multiple opportunities exist to save for the retirement years.

It’s understandable that all these accounts come with rules for the owners: rules about contribution limits, tax obligations, withdrawal procedures, and various penalties for early withdrawal. For the life of me, one rule gets under my skin.

For whatever reason (either special interest or to get someone’s vote), Congress limited IRA contributions by qualifying contributors by income. In other words, those above a certain income cannot contribute to their IRA or they can only contribute a reduced amount.

What were the Capitol Hill nimrods thinking? IRAs should be available for every American. If he chooses, Bill Gates should be able to contribute to an IRA just like Joe Schmuck. I’ll take it one step further. Every American (if they so choose) should be able to maximize contributions into both the traditional and Roth IRAs regardless of income and availability of 401k plans – Period – thus eliminating the need for if-then statements and making the law easier to understand!

Retirement plans are just another example of Congress screwing up a good idea with unnecessary regulations – Damn jackwagons.