My understanding of Universal Savings Accounts (USAs) suggests they are tax-advantaged savings vehicles very similar to Roth IRAs. Contributions are after-tax. Earnings accumulate tax-deferred. Both contributions to a USA account and earnings on those contributions can be distributed at any time, tax free and penalty tax free.
However, that isn’t much of an enhancement over today's Roth IRAs. Withdrawals from Roth IRAs are contributions first, tax-free and penalty-tax-free - anytime, for any reason. Similarly,
if you're under age 59½ and your Roth IRA has been open five years or more, distributed earnings on Roth contributions will not be subject to any income or penalty taxes if you use the withdrawal (up to a $10,000 lifetime maximum) to pay for a first-time home purchase, or you become disabled or pass away.
Also, in a Roth IRA, a withdrawal of tax deferred earnings after 5 years of participation and after reaching age 59 1/2 is not subject to income or penalty taxes.
So, the only obvious difference is the tax treatment of a withdrawal of earnings prior to 5 years of participation or prior to age 59 1/2 (other than the exceptions stated above). Those distributions are subject to income taxes plus a 10% penalty tax for early withdrawal.
Instead of changing the tax treatment for earnings, the better alternative is to leave Roth IRAs alone, given that the suggested changes would reduce taxes and increase the federal deficit, already $2+ Trillion a year, and add to the national debt, already $36 Trillion.
If you want to make an intelligent change to IRAs, so as to allow accumulated assets to be used for any purpose without triggering leakage or taxation, permit loans from IRAs on the same basis as provided in employer-sponsored, tax-qualified plans subject to ERISA (where loans are possible for good reason, bad reason or no reason whatsoever).
In almost all such loan processing, the loan comes with a market rate of interest. Payments of principal and interest are credited back to the IRA owner's own account. Effectively, the assets never leave the plan, but become a fixed income investment in the IRA (earning interest charged on the plan loan). That interest could be tax deductible if secured with a mortgage, where the loan was used as part of a purchase of a personal residence. And, the interest would be distributed tax free if held in the account until the participant met the 5 year/age 59 1/2 requirements.
Call the Roth IRA that allows for plan loans the Bank of Romina, or the Bank of Ivane.
My understanding of Universal Savings Accounts (USAs) suggests they are tax-advantaged savings vehicles very similar to Roth IRAs. Contributions are after-tax. Earnings accumulate tax-deferred. Both contributions to a USA account and earnings on those contributions can be distributed at any time, tax free and penalty tax free.
However, that isn’t much of an enhancement over today's Roth IRAs. Withdrawals from Roth IRAs are contributions first, tax-free and penalty-tax-free - anytime, for any reason. Similarly,
if you're under age 59½ and your Roth IRA has been open five years or more, distributed earnings on Roth contributions will not be subject to any income or penalty taxes if you use the withdrawal (up to a $10,000 lifetime maximum) to pay for a first-time home purchase, or you become disabled or pass away.
Also, in a Roth IRA, a withdrawal of tax deferred earnings after 5 years of participation and after reaching age 59 1/2 is not subject to income or penalty taxes.
So, the only obvious difference is the tax treatment of a withdrawal of earnings prior to 5 years of participation or prior to age 59 1/2 (other than the exceptions stated above). Those distributions are subject to income taxes plus a 10% penalty tax for early withdrawal.
Instead of changing the tax treatment for earnings, the better alternative is to leave Roth IRAs alone, given that the suggested changes would reduce taxes and increase the federal deficit, already $2+ Trillion a year, and add to the national debt, already $36 Trillion.
If you want to make an intelligent change to IRAs, so as to allow accumulated assets to be used for any purpose without triggering leakage or taxation, permit loans from IRAs on the same basis as provided in employer-sponsored, tax-qualified plans subject to ERISA (where loans are possible for good reason, bad reason or no reason whatsoever).
In almost all such loan processing, the loan comes with a market rate of interest. Payments of principal and interest are credited back to the IRA owner's own account. Effectively, the assets never leave the plan, but become a fixed income investment in the IRA (earning interest charged on the plan loan). That interest could be tax deductible if secured with a mortgage, where the loan was used as part of a purchase of a personal residence. And, the interest would be distributed tax free if held in the account until the participant met the 5 year/age 59 1/2 requirements.
Call the Roth IRA that allows for plan loans the Bank of Romina, or the Bank of Ivane.
Failed to mention, for withdrawals after age 59 1/2, but before five years, the earnings are subject to income taxes but not the 10% penalty tax.
Wow! With those kinds of increases in Social Security Benefits, it definitely will run out sooner than later!