President Bush made reference last week to a proposal that aims at getting Americans, particularly the younger generation, to begin socking away money.
"Younger workers should have the opportunity to build a nest egg by saving part of their Social Security taxes in a personal retirement account," Bush said in his State of the Union address.
While Bush's proposed lifetime savings account and retirement savings account resemble Roth IRAs, they have fewer restrictions. Individuals no matter what age or income may contribute up to $7,500 per year, and contributions are taxed upfront. Withdrawals are tax-free.
The lifetime account can be used to save for anything - to foot tuition bills, buy a car or remodel your home. The lack of restrictions means you can get to your money if your child decides against university life after you've diligently saved.
Unlike a traditional individual retirement account where early withdrawals are hit with a 10 percent fee, you can take money out of a lifetime savings account at any time without penalty and without paying taxes.
The retirement savings account may be funded with up to $7,500 a year, as long as that's not more than what you're making. You won't pay a penalty if you wait until you are 58 before taking money out of the account.
In choosing between the two, financial advisers suggest picking the lifetime savings account first because it has a broader purpose. Supporters of the proposed plans like the idea that the programs encourage savings in a less complicated matter.
Lorene Yue is a Your Money staff writer.