THE WHITE HOUSE
Office of the Press Secretary
________________________________________________________________________
For Immediate Release April 14, 1999
PRESIDENT CLINTON INTRODUCES UNIVERSAL SAVINGS
ACCOUNTS: PROVIDING MILLIONS OF AMERICANS A
NEW OPPORTUNITY TO SAVE FOR RETIREMENT
April 14, 1999
Today, President Clinton announced his Plan to Provide Universal
Savings Accounts for Most Americans. These accounts will give 124
million Americans the opportunity to build wealth and to save for their
retirement through a progressive tax cut. A married couple that
participated for 40 years, could accumulate over $253,680 in today's
dollars -- enough to produce $20,121 a year of after-tax income in
retirement.
Currently, Too Few Americans have Additional Savings. Because
Americans are living longer, it is more important than ever for them to
build wealth for a secure retirement. Currently, over two-thirds of
Americans rely on Social Security as their principal source of
retirement income, and 18 percent rely on Social Security as their only
source of income. Too few Americans are saving for their retirement.
The typical family headed by someone 55-64 years of age has financial
assets worth just $32,000.
President Clinton Believes that Social Security Reform Needs to be
Complemented with Actions to Strengthen Private Savings and Private
Pensions. Social Security reform will ensure that Social Security
remains a rock solid foundation for retirement security. Universal
Savings Accounts will give working American families the opportunity to
save for a secure retirement. Under this new program, 73 million people
who do not participate in employer-provided pension plans would qualify
for USAs, as well as 51 million people with pensions.
Here's How USAs Work:
98 million adults would receive an automatic government
contribution to their Universal Savings Account every year.
In addition to the automatic contribution, the government
would match, dollar for dollar, voluntary contributions to
the USAs by low and moderate income workers. Eligible
workers with higher incomes would have a match rate of at
least 50 percent.
USAs Provide a Progressive Approach for Retirement Savings for the
Majority of Working Americans. The current tax system provides 66
percent of the tax benefits for pensions and retirement savings to
taxpayers with incomes above $100,000. In contrast, the USA proposal
would provide 80 percent of its benefits to families with incomes below
$100,000. USAs makes the tax system more progressive by providing the
most generous tax breaks for low and middle income workers -- who are
the least likely to have access to employer pensions and who have the
most difficult time saving.
USAs Will Help Make Additional Retirement Savings Universal. Each
spouse in a married couple with family earnings over $5,000 and adjusted
gross income of less than $100,000 who is between the ages of 18 and 70
will be eligible for a USA tax credit (single taxpayers must have
adjusted gross income below $50,000; head of household filers must have
income below $75,000). In addition, workers with higher incomes who do
not have pension coverage are eligible for an account.
USAs Allow American Families to Build Wealth to Meet Their
Retirement Needs. USAs give these workers an opportunity to build
wealth and save for retirement.
A couple earning $40,000 would automatically receive $600 of tax
credits deposited into their accounts, even if this family contributed
nothing to their accounts. After 40 years, with only automatic
contributions their accounts would total $76,104 (in today's dollars)
and provide $6,036 a year of after-tax retirement income.
However, if each year this family saved $700 ($350 in the account
of each spouse), then the government would provide a $1,300 tax credit
($650 each). After 40 years they would have wealth totaling over
$253,680 in today's dollars, enough to provide $20,121 of after-tax
income in retirement.
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| USA Tax Credits |
| A Family of Four with an Income of $40,000 |
| |
|----------------------------------------------------------------------|
Consider a married couple with two children. One spouse makes
$40,000 a year working for a small business. The other spouse stays at
home with their young children. Like millions of other families, they
live paycheck to paycheck. Before payday, their bank account rarely
has more than a couple hundred dollars.
How the New USA Accounts Work for this Family. The USA accounts
are designed to deliver tax credits to help families save and build
wealth for their retirement. This family would receive:
Automatic Tax Credit: Every year the husband and wife would each
receive an automatic annual tax credit of $300, for a total of $600.
They would claim the tax credit on their tax return, and it would be
deposited in their new USA accounts.
Matched Tax Cut: As a powerful new incentive to save, this couple
would receive an additional $1 in tax credit for every dollar the
couple saved -- up to $700 ($350 each) of savings would be matched.
For each dollar the couple deposited in their USA accounts, they would
receive a corresponding $1 in a matching tax credit, which would also
be deposited in their USA accounts.
This Adds Up to A Big Tax Cut for Retirement Savings and a Great
Investment: The couple's $700 of savings would be supplemented by a
$1300 tax credit for a total of $2000 a year in retirement savings.
That's $600 credited automatically ($300 each) plus a $700 savings
credit ($350 each). The USA credit almost triples the couple's
contribution, and it allows for tax favored build up of account
balances.
The Automatic Tax Credit Provides Core Savings Support
|---------------+----------------+------------------->-----------------|
| | | | |
| Automatic | Family | Matched Tax Cut | Total Annual |
| Tax Credit | Contribution | | Savings in USA |
| | | | |
|---------------+----------------+------------------->-----------------|
| | | | |
| $600 | $0 | $0 | $600* |
| | | | |
|---------------+----------------+------------------->-----------------|
*This savings could build to $76,104 after 40 years -- assuming a
5 percent real rate of return.
The Matching Tax Cut Provides A Powerful Incentive To Save
|---------------+----------------+------------------->-----------------|
| | | | |
| Automatic | Family | Matched Tax Cut | Total Annual |
| Tax Credit | Contribution | | Savings in USA |
| | | | |
|---------------+----------------+------------------->-----------------|
| | | | |
| $600 | $700 | $700 | $2000* |
| | | | |
|---------------+----------------+------------------->-----------------|
*This will provide a total tax credit of $1,300.
These savings could build to $253,680 after 40 years -- assuming
5 percent real rate of return. And would provide $20,121 of
after-tax income in every year of retirement.
Building Wealth for Retirement. Regular savings over a lifetime
combined with these tax credits will help working families build wealth
and retirement security. If this family saved $700 every year and
received the maximum tax credit of $1,300, after 40 years they would
have a nest egg of wealth totaling $253,680 in today's dollars. This
would provide $20,121 of after-tax income in every year of retirement
from depositing only $700 per year while they worked.
Benefits of USA Tax Credits Compared to the 10% Across-the-Board Tax
Cut. This family would receive a much larger tax cut from the USA
account tax credits than from the 10% across-the-board tax cut. While
this family would receive just $315 from the across-the-board tax cut,
they would be eligible to receive $1,300 from the USA account tax
credits.
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| USA Tax Credits |
| A Family of Four with an Income of $60,000 |
| |
|----------------------------------------------------------------------|
Consider a married couple with two children. One spouse makes
$60,000 a year working for a small business. The other spouse stays at
home with their young children. Like millions of other families, they
live paycheck to paycheck. Before payday, their bank account rarely
has more than a couple hundred dollars.
How the New USAs Work for this Family. USAs are designed to
deliver tax credits to help families save and build wealth for their
retirement. This family would receive:
Automatic Tax Credit: Every year the husband and wife would each
receive an automatic annual tax credit of $150, for a total of
$300. They would claim the tax credit on their tax return and it
would be deposited in their new USAs.
Matching Tax Credit: As a powerful new incentive to save, this
couple would receive an additional $0.75 in tax credit for every
dollar the couple saved -- up to $972 ($486 each) of savings
would be matched.
This Adds Up to A Big Tax Cut for Retirement Savings and a Great
Investment: The couple's $972 of savings would be supplemented
by a $1,028 tax credit for a total of $2,000 a year in retirement
savings. That's $300 credited automatically ($150 each) plus a
$728 savings credit ($364 each). The USA credit more than doubles
the couple's contribution, and it allows for tax favored build up
of account balances.
The Automatic Tax Credit Provides Core Savings Support
|---------------+----------------+------------------->-----------------|
| | | | |
| Automatic | Family | Matching | Total Annual |
| Tax Credit | Contribution | Tax Credit | Savings in USA |
| | | | |
|---------------+----------------+------------------->-----------------|
| | | | |
| $300 | $0 | $0 | $300 |
| | | | |
|---------------+----------------+------------------->-----------------|
*This savings could build to $38,052 after 40 years -- assuming a
5 percent real rate of return.
The Matching TAX CREDIT Provides A Powerful Incentive To Save
|---------------+----------------+------------------->-----------------|
| | | | |
| Automatic | Family | Matching | Total Annual |
| Tax Credit | Contribution | Tax Credit | Savings in USA |
| | | | |
|---------------+----------------+------------------->-----------------|
| | | | |
| $300 | $972 | $728 | $2000* |
| | | | |
|---------------+----------------+------------------->-----------------|
*This will provide a total tax credit of $1,028.
These savings could build $253,680 after 40 years -- assuming
5 percent real rate of return. And would provide $20,121 of
after-tax income in every year of retirement.
Building Wealth for Retirement. Regular savings over a lifetime
combined with these tax credits will help working families build wealth
and retirement security. If this family saved $972 every year and
received the maximum tax credit of $1,028, after 40 years they would
have a nest egg of wealth totaling $253,680 in today's dollars. This
would provide $20,121 of after-tax income in every year of retirement
from depositing only $972 per year while they worked.
Benefits of USA Tax Credits Compared to the 10% Across-the-Board Tax
Cut. This family would receive a much larger tax cut from the USA
account tax credits than from the 10% across-the-board tax cut. While
this family would receive just $547 from the across-the-board tax cut,
they would be eligible to receive $1,028 from the USA account tax
credits.
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| USA Tax Credits |
| A Family of Four with an Income of $80,000 |
| |
|----------------------------------------------------------------------|
Consider a married couple with two children. One spouse makes
$80,000 a year working for a small business. The other spouse stays at
home with their young children.
How the New USAs Work for this Family. USAs are designed to
deliver tax credits to help families save and build wealth for their
retirement. This family would receive:
Matching Tax Credit: As a new incentive to save, this couple
would receive an additional $.50 in tax credit for every dollar
the couple saved -- up to $1,333 ($667 each) of savings would
be matched.
This Adds Up to A Big Tax Cut for Retirement Savings and a Great
Investment: The couple's $1,333 of savings would be supplemented
by a $667 tax credit for a total of $2,000 a year in retirement
savings. That's a $667 savings credit ($333 each). The USA
credit increases the couple's contribution, and it allows for tax
favored build up of account balances.
At this income level the Automatic tax credit is not available.
|---------------+----------------+------------------->-----------------|
| | | | |
| Automatic | Family | Matching | Total Annual |
| Tax Credit | Contribution | Tax Credit | Savings in USA |
| | | | |
|---------------+----------------+------------------->-----------------|
| | | | |
| $0 | $0 | $0 | $0 |
| | | | |
|---------------+----------------+------------------->-----------------|
The Matching Tax Cut Provides A Powerful Incentive To Save
|---------------+----------------+------------------->-----------------|
| | | | |
| Automatic | Family | Matching | Total Annual |
| Tax Credit | Contribution | Tax Credit | Savings in USA |
| | | | |
|---------------+----------------+------------------->-----------------|
| | | | |
| $0 | $1,333 | $667 | $2000* |
| | | | |
|---------------+----------------+------------------->-----------------|
*This will provide a total tax credit of $667.
These savings could build $253,680 after 40 years -- assuming
5 percent real rate of return. And would provide $20,121 of
after-tax income in every year of retirement.
Building Wealth for Retirement. Regular savings over a lifetime
combined with these tax credits will help working families build wealth
and retirement security. If this family saved $1,333 every year and
received the maximum tax credit of $667, after 40 years they would have
a nest egg of wealth totaling $253,680 in today's dollars. This would
provide $20,121 of after-tax income in every year of retirement from
depositing only $1,333 per year while they worked.
Benefits of USA Tax Credits Compared to the 10% Across-the-Board Tax
Cut. This family would receive $947 from a 10% across-the-board tax
cut. At first glance, this might seem to be somewhat larger than the
$667 USA tax credit. However, the USA also provides for tax-free
compounding of account balances, making the tax credit worth well over
$1000 to this family.
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| THE NEED FOR USAs |
| Making Savings For A Secure Retirement |
| Available to More Americans |
| |
|----------------------------------------------------------------------|
Currently, Too Few Americans Have Enough Savings For A Secure
Retirement. Because Americans are living longer it is more important
than ever for them to build the wealth necessary for a secure
retirement. But there are gaps in the system that leave too many
American families behind.
Social Security Provides A Core Foundation For Retirement And
Reform is Necessary To Keep It Strong, But It Is Only One Leg of The
Retirement Stool. While providing basic economic security for older
Americans, the program was never meant to provide enough to maintain
the standard of living individuals had during their working years.
Social Security replaces just one-half of pre-retirement income for an
individual who earned $17,000, and less than one-quarter of the income
of an individual who earned $72,600. Yet Social Security is the only
source of income for 18 percent of elderly Americans, and the
principal source of income for 66 percent of elderly Americans.
Pension Coverage Provides Additional Support, But Many American
Workers Are Not Covered.
-- Half of all American workers have no pension coverage at all
through their current job. This situation is worse for workers
in small businesses, where only 18 percent of people who work
for organizations employing fewer than 25 workers have access
to pensions through their current job.
-- Less than 20 percent of workers have their own IRA, and many
do not contribute regularly.
-- Just one quarter of all workers are covered by 401(k) plans in
their current job. And while two-thirds of people with earnings
$75,000 and over have 401(k)s, just 43 percent of those with
earnings between $35,000 and $39,000 have 401(k)s.
-- While 91 percent of all families have some financial holdings,
the median value of these holdings is just $13,000. The median
value of financial assets of families headed by someone over
age 65 is just $20,000.
The Tax Incentives For Retirement Savings Help Many American Families,
But The Tax Benefits Are Skewed To The Better Off.
Two thirds of existing pension tax subsidies go to families with
incomes over $100,000, while just one third goes to those making
under $100,000 and just 7 percent goes to families earning less
than $50,000.
USA Accounts provide a progressive tax credit so that the overall
retirement system will be more balanced and give all American families
an incentive to save.
80 percent of the tax benefits of USA Accounts go to those making
under $100,000.
|----------------------------------------------------------------------|
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| SUMMARY OF UNIVERSAL SAVINGS ACCOUNT PROPOSAL |
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|----------------------------------------------------------------------|
Universal Savings Accounts (USAs) are voluntary individual
retirement savings accounts with a progressive tax subsidy.
Automatic Government Contribution. Workers and their spouses in
low- or moderate-income households receive an automatic government
contribution of $300, in the form of a refundable tax credit deposited
directly into their USAs. The automatic credit is phased out between
$40,000 and $80,000 of adjusted gross income (AGI) for joint filers
($20,000-$40,000 for singles; $30,000-$50,000 for head of household
filers).
Government Match of Individual Contributions. Voluntary individual
contributions to a USA are matched by additional government
contributions to the taxpayer's USA. The matches will also be in the
form of a refundable tax credit deposited directly into the USA. Low-
and moderate-income individuals receive a dollar-for-dollar match. The
match rate phases down to 50 percent over the same income ranges as the
phase-down for the automatic contribution, and then remains at 50
percent until the income level at which eligibility ends ($100,000 for
joint filers with pension coverage; $50,000 for single filers with
pension coverage; $75,000 for head of household filers with pension
coverage; no limit for people without pension coverage). Total
contributions (including the credit) to an account are capped at $1,000
per year.
Eligibility. To be eligible, a taxpayer must have at least $5,000
of earnings (which can be combined earnings on a joint return) and must
not be the dependent of another taxpayer. Thus, an individual without
earnings can have a USA if his or her spouse earns at least $5,000.
Taxpayers younger than age 18 or older than 70 are ineligible.
Taxpayers with an employer-sponsored retirement plan must have AGI of
less than $100,000 for joint filers ($50,000 for single filers; $75,000
for head of household filers). All eligible workers without an
employer-provided pension would receive at least a 50 percent match,
regardless of income.
Investment Choice. Individuals will have the option of investing
their accounts in a universal retirement plan similar to the Federal
Thrift Savings Plan (TSP), a 401(k)-type plan for federal government
employees. Individuals would be able to choose among a limited number
of broad-based investment options similar to those offered in the TSP
and in many private sector 401(k) plans. We look forward to working
with Congress and experts from the private sector to devise the best
way to administer the accounts, as well as to explore whether it would
be possible to provide account holders with the option of investing
directly with private sector fund managers.
Withdrawal Rules. No amount could be withdrawn from a USA before
age 65, unless the account holder dies. Once withdrawals commence
after age 64, no additional contributions could be made to the account.
Tax Treatment of Accounts. Automatic and matching government
contributions would not be taxable when deposited to accounts. Earnings
would grow tax free until retirement. Withdrawals would generally be
taxable, but 15 percent of each withdrawal would be excluded from taxes
in order to approximate a tax-free return of an individual's own
contribution. Voluntary USA contributions will not be tax deductible
because the tax subsidy is provided in the form of the tax credit rather
than a deduction, enabling the program to be more progressive.
Coordination with 401(k)-type Plans. Eligible employees will
receive a government matching contribution deposited to their USA when
they contribute either to their USA or to a 401(k)-type plan. The
government match supplements any employer matching contributions.
Therefore, USAs will not cause workers to shift contributions from
private-sector 401(k)-type plans to USAs. In fact, USAs will encourage
workers to save through 401(k)-type plans by giving the millions of
workers who are currently eligible to contribute, but who fail to do so,
a greater incentive to contribute without imposing administrative
burdens on employers or plan administrators. Because contributions to a
401(k)-type plan are excludable from taxable income while USA
contributions are not, joint filers with AGI of more than $50,000
($25,000 for single filers; $37,500 for head of household filers) who
elect to receive government matches will be required to include in
taxable income 80 percent of the portion of the 401(k) contribution that
is matched.
Protections for Women Including Divorcees and Widows. The design of
USAs recognizes that women are more likely to spend time out of the
labor force than men and have lower average earnings than men, and
ensures women will have the opportunity to accumulate significant
savings in their USAs. First, spouses of workers are eligible for the
USA tax credit even if they do not work. Second, the progressive
credit formula targets the tax benefits to low and moderate income
workers. We look forward to working with Congress and outside experts
to determine what the best means are to ensure that women are protected
in case of divorce or widowhood.
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