YOU HAVE FOUND OUR OLD WEB SITE. BE SURE TO CHECK OUT OUR NEW AND IMPROVED SITE!     RSA/LSA FAQs On January 31, 2003 the Bush administration proposed replacing 401(k)-style retirement accounts including small-business SIMPLE and SARSEP plans, 403(b) plans for nonprofit workers, and 457(b) programs for government employees, as well as corporate 401(k) plans with a new Employer Retirement Savings Plan (ERSA). Proposal also includes replacing IRA with a Retirement Savings Account (RSA), and the creation of new savings plan to be known as the Lifetime Savings Account (LSA). Below are some RSA/LSA FAQs released by the Treasury Department.     I have been contributing to IRAs for years. Will I have to stop? After 2003, you will no longer be able to contribute to an IRA. However, your ability to contribute to both an LSA and an RSA will give you much more flexibility to save for your future. You will be able to save up to $7,500 (indexed in the future for inflation) in an LSA plus up to $7,500 (indexed in the future for inflation) in an RSA for a total of $15,000 in tax-preferred savings. In addition, you will have much more flexibility to take distributions for what you deem appropriate when you deem it appropriate   Will there be any income limitations on making contributions to LSAs or RSAs? There are no income limitations on making contributions to LSAs. You can make a contribution to an LSA even if you have no wage income. Thus, you can make contributions on behalf of your children or other family members, in order to help them save for home ownership, health emergencies, education, retirement, or other future costs. While there are no maximum income limitations on making contributions to RSAs, you may not contribute more than your compensation (wages) income to an RSA.   What tax benefits do I receive if contributions are not deductible? While all contributions to LSAs and RSAs will be nondeductible, all distributions from LSAs and RSAs (except for RSA distributions prior to age 58, death or disability) will be excludible from taxable income. As a result, all investment earnings can be distributed tax free. This is the same tax treatment as current law Roth-IRAs.   Which tax treatment would be better for me: an old-style deductible IRA or a new Roth-style RSA? For the vast majority of individuals it doesn't make a difference: After-tax income in retirement is the same whether contributions are tax free and distributions are taxed or contributions are taxed and distributions are tax free. The only exceptions to this rule are individuals who change tax brackets after they retire. If an individual's tax rate declines in retirement, deductible contributions are better; if an individual's tax rate increases in retirement, Roth treatment is better.   Will I continue to be able to contribute to Archer medical savings accounts, Coverdell education savings accounts and qualified state tuition programs? Yes. The LSA/RSA proposal will not affect your ability to contribute to MSAs, ESAs, or QSTPs. Many taxpayers may prefer the increased flexibility of the new LSAs as their tax-preferred savings vehicle.   Can I convert my existing IRAs, MSAs, ESAs, and QSTPs to an LSA or RSA? You may convert an MSA, ESA, or QSTP to an LSA anytime before January 1, 2004. In the case of a conversion of a QSTP or ESA, no amount would be taxable in the year of the conversion while a conversion of an MSA to an LSA will result in taxation of the total amount converted in the year of the conversion. You may convert a traditional IRA to an RSA at any time. The amount converted will be taxable except to the extent that you have basis in your IRA. If you convert prior to January 1, 2004, you will be able to spread the tax on the conversion over a four-year period. For conversions on or after January 1, 2004, the total taxable amount will be included in your gross income for the year of the conversion.   Will the Saver's Credit still be available after the enactment of the LSA/RSA proposal? Yes. The Saver's Credit will be available for elective deferrals and LSA/RSA contributions made prior to 2007.   What will happen to the new deemed IRA provision? Will employer plans still be able to offer them? Deemed IRAs will become deemed RSAs and will be subject to the rules applicable to RSAs.   Who will be able to become trustees for the LSAs and RSAs? The rules that now apply to IRAs regarding who can be a trustee will apply to LSAs and RSAs. Thus, the trustee will have to be a bank or another person who demonstrates to the IRS that the manner in which they will administer the trust will be consistent with the rules applicable to LSAs and IRAs.   Will LSAs and RSAs be permitted to be held in the form of an annuity? Yes. LSAs and RSAs may be held in the form of a nontransferable annuity contract issued by an insurance company that meets the rules that currently apply to individual retirement annuities.   Can I make LSA or RSA contributions on behalf of other persons, such as my children or spouse? Yes, you may make LSA or RSA contributions on behalf of any other individual. However, total contributions made on behalf of an individual may not exceed $7,500 for LSAs and $7,500 (or compensation income, if less) for RSAs. In the case of a married couple filing jointly, RSA contributions up to $7,500 can be made for each spouse (including, for example, a homemaker who does not work outside the home) if the combined compensation of both spouses is at least equal to the contributed amount.   Will catch-up contributions be available for LSAs or RSAs? Catch-up contributions will not be available for LSAs or RSAs, but the limits applicable to all individuals in LSAs and RSAs will be significantly greater than the existing IRA limits, even with catch-up.   Source: United States Department of the Treasury   Home | Disclaimer | © 2003 bWise Guys, LLC. All rights reserved.				More Information ERSA FAQs Treasury Department Press Release Got a RSA/LSA question? Got a RSA/LSA answer? Join Discussion