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US Congress Receives Flexible, Tax-Free Savings Bill

by Mike Godfrey, Tax-News.com, Washington

09 February 2017

On February 7, Senator Jeff Flake (R - Arizona) and Representative Dave Brat (R - Virginia) reintroduced a bill into the US Congress that would create flexible, tax-free savings accounts.

They pointed out that savings vehicles currently available to taxpayers, such as individual retirement accounts and health savings accounts, lock money up for extended periods of time and limit withdrawals for specific expenses. These excessive restrictions and penalties for tax-advantaged accounts can dis-incentivize saving.

In contrast, the Universal Savings Account (USA) Act would incentivize saving through the creation of flexible Universal Savings Accounts (USAs). The bill would allow any individual over the age of 18 to contribute up to USD5,500 in after-tax income annually into a USA where those funds can grow tax-free. Account holders would always have the freedom to withdraw those funds, without the imposition of tax, at any time and for any reason.

"Our tax code shouldn't penalize savers for accessing their own money when they need it," said Flake. "The USA Act provides consumers with a flexible option to grow their savings tax-free without burdensome federal restrictions."

TAGS: tax | investment | tax incentives | law | banking | retirement | legislation | United States | tax breaks | penalties | individual income tax

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I am concerned that you compare retirement accounts to general savings accounts. Everyone should have IRAs or other accounts only for retirement.

Since people have a hard enough time with regular savings (not doing it), you would not be helping them.

Joy on Monday, February 27, 2017

The savings issue is not addressed until the Fed. Gov. removes the requirement to tax USA citizens' twice and ongoing for monies earned and for interests gained in any savings vehicle.

Roberta Gasiorowski on Friday, February 24, 2017

Only $5,500? Why bother with a piggy bank? It's probably fine for young folks but doesn't do much for seniors who may not have many years to "grow" savings.

James Moehnke on Thursday, February 23, 2017

....there are a few of us who read and value your actions and comments. keep up the good work, Arizona need it.

michael johnson on Thursday, February 23, 2017

GREAT, but why limit this to just $5,500? We are savers and get penalized with paying taxes on the interest we get from our savings. If able, try to include a catch up provision.

Bryan Butler on Thursday, February 23, 2017

Of course it would be a good idea but the government would probably find a way to screw us out of the money anyway. Almost 50 years ago when I got my first job I begged to not be forced to pay into social security but into another account. I was pretty sure the government would not use the money wisely....I was correct. The lock box has a big hole in it.

James Richardson on Thursday, February 23, 2017

Of course I love the idea of sheltering earnings from taxes without a time restriction, but Senator Flake's statement is misleading. The tax code does not penalize savers for accessing their initial contribution. Only the subsequent earnings or profits are taxed. Politicians should not mislead the public in this way!

Jerry Martin on Thursday, February 23, 2017

I think this is a great idea. Thank you!

Donna Blanchette on Wednesday, February 22, 2017

Very good intentions, yet it creates another account type and more tax language. How about increasing the eligibility and limits allowed for existing Roth IRA accounts. Simultaneously removing the restrictions for qualified withdrawals. This would lead to a reduction in the tax language around savings vehicles, and achieve the same goals. Keep the good savings ideas coming.

Jason Washo on Wednesday, February 22, 2017

What kind of savings? Are you investing or just getting a crappy less than 1% return? No taxes on the money earned? Or no taxes on the deposits? Sounds stupid.

Cherie Randall on Wednesday, February 22, 2017

Depending on the details, it sounds like a good idea. People need to save. The current system gives people an incentive to save for retirement, but too many find they have to use those funds for other things when they have unforseen events often resulting in huge penalties as well as taxes.

Susan Gishey on Wednesday, February 22, 2017