ISSUE BRIEF IRAs and Bankruptcy Protection We need to encourage Americans to save. Americans today are saving less than at almost any time since World War II. The United States has one of the lowest saving rates of the industrialized nations. For individuals, in particular the Baby Boom generation, our low savings rate will lead to a retirement savings crisis unless we find a way to change people's attitudes about saving. Americans have been saving in Individual Retirement Accounts (IRAs) since the early 1980s when they were universally available to everyone. The Taxpayer Relief Act of 1997 increased Americans' ability to save for retirement by significantly expanding availability to IRAs. We need to further encourage saving through IRAs by providing them the same treatment as other retirement assets in a bankruptcy situation. Expanded IRAs Have Encouraged Americans to Save for Retirement: Congress and the President responded to Americans' need to save for retirement by including significantly expanded IRA provisions in the Taxpayer Relief Act of 1997. Eligibility for the traditional, tax-deductible IRA and spousal IRAs was increased. The Taxpayer Relief Act also created the popular Roth IRA. As a result, many Americans are saving more for their retirements by using this popular savings vehicle. At the beginning of the year, financial institutions noted an increase in not only the request for information on IRAs, but opening accounts as well. The Wall Street Journal reported that by the end of February 1998, the total sales of IRAs were up by 200% for one of the members of the Savings Coalition of America. By mid-April 1998, another Savings Coalition member stated that it had done as much IRA business this year as it had for all of 1997. Bankruptcy Protection for IRAs: Currently under federal law IRA assets are provided a limited level of protection when an individual files for bankruptcy protection. The House recently passed H.R. 3150 that includes provisions that protect all retirement assets including those held in an IRA established under section 408 of the Internal Revenue Code, from creditors in the bankruptcy process. The Roth IRA, an after-tax personal retirement account established under section 408A of the IRS code, should receive the same treatment as other IRAs, and therefore, should be included in that provision. A provision that confirms that all IRAs, including a new Roth IRA, are protected would alleviate confusion for the courts and for individuals. All IRAs (whether tax-deductible, non-deductible or Roth) are retirement assets for Americans. As such they should be afforded the same protection as other retirement assets, such as 401 (k) plan contributions, when an individual files for personal bankruptcy protection. Dissimilar treatment of retirement vehicles under the bankruptcy laws could lead to inconsistent and unfair results which this provision of H.R 3150 seeks to avoid. For instance, under current law, an individual who rolls over retirement assets from a 401(k) plan to an IRA would receive less protection for his or her retirement savings than if the assets had remained in the 401(k) plan. Similarly, retirement assets moved from a traditional IRA to a Roth IRA should continue to have the same treatment under the bankruptcy laws. Providing uniform bankruptcy treatment of all retirement assets would lessen confusion on the part of Americans if they find themselves in the unfortunate situation of having to file for bankruptcy protection. IRAs encourage Americans to save for their retirement. Those savings should be available in the future to provide funds for retirement. The Savings Coalition of America was established in 1991 to support incentives to increase personal savings in the United States. Its main objective is to win passage of expanded Individual Retirement Account (IRA) legislation for all Americans. There are 75 member organizations of the Savings Coalition representing a wide variety of private interests including home-building, realtors, intangible assets, trust companies, health care industry, engineering, consumer, education and business groups, banking, insurance, securities and financial services. If you would like information on the Savings Coalition of America please direct inquiries to The Savings Coalition of America, 1225 I Street, NW, Suite 500, Washington, DC 20005 (202) 682-4736.