April 28, 2007


10 Steps to Reforming Baby-Boomer Retirement (John C. Goodman, Devon M. Herrick and Matt Moore, April 2007, Kiplinger's)

Step 2: Improve 401(k) Plans. More than half of all workers invest in a 401(k) or similar savings vehicle. But not enough people are investing appropriately for their future. They either do not invest enough or they pursue investment strategies that will not provide an adequate retirement income. To correct this problem, employers should be given a safe harbor against lawsuits and receive other regulatory relief if they invest employees in diversified portfolios, follow an investment strategy that becomes more conservative as the employee ages, and convert the funds into an annuity at retirement -- unless the employee specifically opts out.

Step 3: Expand Individual Retirement Accounts (IRAs). Current tax law penalizes those who do not have employer-sponsored savings plans. For example, participants in an employer-sponsored 401(k) plan can contribute up to $15,000 annually, while nonparticipants can contribute only $4,000 to a tax-advantaged IRA. Treat all savers equally. [...]

Step 6: Use the Roth Method of Taxation. Unlike traditional savings vehicles, deposits into Roth IRAs are made with after-tax dollars, and withdrawals are tax free. Given the effects of the Social Security benefits tax and the expectation that tax rates will be much higher in the future (in part to deal with the expenses of Social Security, Medicare and Medicaid), Roth taxation makes sense for many taxpayers. Yet Roth IRAs, like traditional IRAs, are discriminated against relative to employer-provided savings plans. Level the playing field. [...]

Step 9: Create Health Savings Accounts for Seniors. Despite coverage from Medicare, seniors pay half their medical bills out of their own pockets. And they have few opportunities to use tax-free savings to prepare for these expenses. Under current law, Medicare-eligible seniors cannot open or make deposits to Health Savings Accounts (HSAs), and opportunities for young people to make deposits are too restrictive. Clearly we need a more liberal HSA policy. Short of that, seniors should be able to turn IRA and 401(k) funds into new Roth HSAs so money spent on health care is not taxed.

Posted by Orrin Judd at April 28, 2007 9:18 PM

It is really to late for HSA's to be a viable medica care alternative for boomers, except as a tax shelter. If we are to be able to piggy-back HSA's on top of IRA catch-up, well, every little bit helps.

Posted by: Lou Gots at April 29, 2007 7:27 AM

Hardly. What HSAs would do is give them 30 years where they'd have to pay for the useless drugs they take and the cash on hand to pay for their expensive deaths.

Posted by: oj at April 29, 2007 9:20 AM