The Individual Retirement Account is a good deal-there's no simpler way to describe it, IRAs give individuals two opportunities to build retirement wealth. The Roth IRA works a little differently, providing its tax break on the back end-at retirement age there are no taxes on the earned dividends built up over the years through compound interest. Either way, it's a great incentive to save. The only problem is that IRAs have not kept pace with the times, the rate of inflation, or the cost of living. Congress is well positioned to take action this year on raising the IRA contribution cap, and it should.
Legislation calling for periodic increases in the contribution cap is long overdue.
The value and attractiveness of the IRA as a savings vehicle would be severely limited if another two decades pass before a subsequent adjustment is made. An inflation-indexed mechanism that raises the cap based on increases in the cost of living would ensure that IRAs maintain their real dollar value. Congress should also consider adding a periodic adjustment feature to the income limits that govern IRA eligibility. While the income limits for deductible IRAs will rise gradually over the next few years, they will continue to restrict saving by middle-income workers if not kept in line with increases in inflation. IRAs should be given equal treatment.