IRAs (individual retirement accounts) should be available to all persons with earned income, even though they may be covered by qualified plans, says John F. Cogan, president of the Pioneer Group Inc. and former Investment Company Institute chairman.
The IRA was established by the Employee Retirement Income Security Act of 1974. It grew out of a Treasury Department proposal to permit retirement savings by persons who either were not covered by employer-sponsored qualified plans, or for whom the employer contributions were less that $1,500.
IRAs were developed to give workers some tax benefits as an incentive to build retirement savings. But the difficulty of keeping track of how much an employer contributed to an employee in some company plans led Congress to make IRAs unavailable to all employees who are active participants in employer plans. This provision has created serious administrative complexities and has operated unfairly in some instances, Mr. Cogan contends.
The present limitations on those subscribing to IRAs are:
* IRAs are restricted to individual workers who are not active participants in a qualified retirement plan.
* A ceiling of 15 percent of annual compensation or $1,500, whichever is less.
* A penalty on withdrawal prior to age 59 1/2, except for disability or death.
Efforts are being made in Congress to broaden these limitations. Legislation has been presented by Rep. W. Henson Moore (R) of Louisiana in an attempt to revamp present IRA restrictions. "Most working people are not participating in IRAs because they are afraid to tie up money in a closed account for many years, " Mr. Moore has said. "Workers need an escape clause which allows them access to their money for valid purposes."
Mr. Cogan agrees with Representative Moore, urging that the $1,500 limit be raised to $2,000, and that withdrawal be permitted without penalty if the money is used either to purchase a first home, or to pay for a child's post-high schoold or vocational training.