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Homemakers Get a Bonus in Small Business Tax Bill

Thursday, July 18, 1996

OnLine

Families with only one breadwinner finally may win retirement savings equity, thanks to the Small Business Job Protection Act (HR 3448) passed by the Senate July 9.

If this measure becomes law, one-income families can make tax-deductible contributions of up to $4,000 a year to their individual retirement accounts. (They still must meet other criteria for making tax-deductible contributions, mainly earning less than $40,000 a year, or not being covered by an employer-sponsored retirement plan.)

Under current law, a two-income couple with no other pension plan may contribute up to $4,000 a year tax-free to their IRA ($2,000 for each). A one-income couple, though, can contribute only $2,250 a year, hardly enough to guarantee retirement security for both.

Sens. Kay Bailey Hutchison, R-Texas, and Barbara Mikulski, D-Md., have pushed to change this gap for some time. According to Sen. Hutchison, this measure affects 10 million American women. On May 20, the Senate concurred, passing a non-binding resolution that any tax bill voted on this year should have the so-called "homemaker IRA" provision attached to it.

Only about half of American workers are covered by traditional pension plans. With the Social Security system bracing to face the demographic overload when the baby boom generation starts retiring early in the next century, all Americans need to save as much as possible for their retirement. This new provision should help.

Hutchison estimates that a family that puts aside this extra $1,750 a year in their IRA for 40 years would end up with $287,000 more in their retirement accounts (assuming a 6% rate of return).

The original version of the Small Business Job Protection Act passed by the House did not contain the homemaker IRA, but this politically popular idea should make it into the final form of the bill. But the legislation is stalled until a conference can be held to resolve differences between the House and Senate versions of the bill.

So far, though, efforts to appoint conferees have been blocked by opponents to the minimum wage hike and also in part due to a political stalemate between Republicans and Democrats over another bill, the health insurance reform bill. It remains to be seen whether the homemaker IRA ultimately becomes law.