NEW YORK (CNNfn) - The man behind the Roth IRA said the new retirement account will offer millions of Americans tax-free earnings.
U.S. Senate Finance Chairman William V. Roth Jr., R-Del., said the Roth IRA is a better deal for most Americans than traditional accounts.
"I think it's such a good idea," Roth said Friday on CNNfn's "Trading Places." "For most people who have another 15 years of work before they retire, the Roth IRA has a tremendous advantage."
One benefit of the Roth retirement account is when you draw money out after age 59-1/2, all the gains you earned after the first five years will go to you free of tax. By contrast, current IRA holders are taxed on all their gains.
But not everyone is eligible. The income limit to contribute $2,000 to an account in 1998 is $95,000 for a single person, phased out at $110,000. For couples who want to contribute $2,000 each, the cutoff is $150,000, phased out at $160,000.
And not everyone can transfer existing IRAs into Roth IRAs. Only people with adjusted gross incomes of under $100,000 can convert. (That's for single people or couples).
Roth said he had hoped to boost the income limit to transfer into a Roth IRA. Because of all the competing political influences, he had to settle with $100,000.
"I wanted to make these IRAs available to many, many people," Roth said.
The same political compromising took place with the capital gains changes, he said. (285K WAV) or (285K AIFF)
As part of the tax law changes, capital gains dropped from 28 percent to 20 percent on assets owned longer than 18 months.
Depending on a person's income level, there are other rates for assets owned less than a year, up to 18 months, and more than 18 months. Two other rates don't take effect until the year 2000.
Roth said the most serious problem facing the nation is the complicated tax system.
"I would like to take steps towards simplification," Roth said. "I think the American people are taxed too much. So I strongly support and have advocated for many years reducing the taxes on the working people of America."
Another change with the Roth IRA is that people don't have to withdraw the money when they reach age 70-1/2, as with other retirement accounts. Instead, they can continue contributing.
Parents and grandparents can also withdraw money from Roth accounts to pay for college tuition without paying a penalty.
"It's a major step forward in helping finance the education of your children or grandchildren," Roth said.