Restructuring Retirement Plans

Elderly woman and money in the background

When President Bush unveils his budget next week, he will propose a sweeping restructuring of retirement savings plans, including the creation of so called "lifetime savings accounts, reports CBS News Correspondent Anthony Mason.

Under the proposal any individual could contribute up to $7500 a year. The contribution would not be tax deductible, but all interest & earnings would accumulate tax-free. And you could withdraw money for any purpose: to buy a house, pay tuition or for medical bills.

"You could use that for anything at any time. And there'll be no tax," said Karen Altfest.

Altfest, a financial planner, and her client Jean Leung liked the idea.

"Anything that'll help us save money - increase the potential that we are not paupers by the time we are elderly," said Leung.

The president will also propose restructuring the Roth IRA. The new "retirement savings account" would eliminate income restrictions for contributors -- now up $110,000 for individuals -- and raise the contribution limit from $3000 a year to $7500.

But already critics are saying it's only the affluent that will benefit from the new plans.

"For the vast majority of workers this makes no difference at all," said Dean Baker of the Center for Economic and Policy Research.

Baker says even under the current system few taxpayers can afford to make the maximum contribution.

"You only have four or five percent of workers who are contributing at the limit in any case," he told Mason. "So relaxing the limits as these proposals seem to intend to do, barely affects anyone."

Some say the tax savings for wealthier Americans will only further balloon the budget deficit down the road. The president has taken a lot of flak for his plan to eliminate taxes on dividends. His IRA reforms may hit even more turbulence.