WHATEVER baby boomers want, they get -- and what they want now are bigger tax breaks for retirement accounts. Last month, the government delivered. Tacked to the rise in the minimum wage are 31 aids to saving money tax-deferred.
Most of the changes take a trickle-down approach. They give richer options to the boss, in the hope he or she will pass the beneficence down the ranks. Just in case that doesn't happen, the law offers workers a few direct tax savings, too.
Among the money-saving changes:
Larger maximum contributions to 401(k)s, 403(b)s, Keoghs and other retirement plans. Today, your account can receive up to 20 percent of your earnings (to a maximum contribution of $30,000, including whatever money your employer adds). Starting in 1998, that rises to 25 percent plus whatever you put in a company child-care or health-care account. On a $40,000 salary, you and your company will be able to contribute as much as $10,000, compared with $8,000 today.
A break for people who labor into older age. Of all the people at work today, only 1.3 percent are 70 or older. But that is sure to rise as low-saving boomers discover they can't afford to quit. Today, you have to start taking money out of your company savings plans at 70 1/2 , even if you're still employed.
Starting next year, however, you can wait until retirement. If you leave your plan untouched for four extra years, you'll have 24 percent more to retire on, says consulting actuary Bruce Temkin of Louis Kravitz & Associates in Encino, Calif.
Mandatory withdrawals will still start at 70 1/2 , however, for people who own at least 5 percent of their business and for any money in Individual Retirement Accounts.
Better IRAs for spouses at home. Today, one-earner couples get up to $2,000 plus $250 for a spouse. Next year, it's $2,000 each -- just what working couples have.
Better plans for tax-exempt groups that don't qualify as charities. This includes credit unions, real estate boards, fraternal orders, chambers of commerce and many others. They've generally been limited to IRAs or traditional pensions. Now they can also have 401(k)s.
Better benefits for union members. Under many union plans, you don't earn a pension until you've worked at least 10 years -- something union leaders haven't troubled to change. Nonunion plans, by contrast, can't make you wait any longer than five years.
The new law imposes five-year vesting on unions, too -- starting in 1997 or 1998, depending on the contract year.
A tax break for people with super-rich retirement accounts. At 70 1/2 , you normally have to start taking money out of your plan, at a rate that will deplete your savings over a preordained number of years.
At any age, you owe income taxes on withdrawals. There's also a 15 percent excise tax on amounts over $155,000 (indexed to rise with inflation each year).
The new law waives that excise tax from 1997 through 1999.
A new small-company retirement plan -- the Savings Incentive Match Plan for Employees. (SIMPLE, if you believe acronyms). It lets the boss set aside up to $12,000 annually for himself, even if no employees join. If they do, however, he has to contribute something to their accounts.
Bigger tax-deferred plans for husbands and wives who run a company together.
The boomers want every benefit they can get.
Pub Date: 9/23/96