Paull Letter to Moore on IRS Contributions Limit

February 11, 1999

[1] This letter is in response to your request of January 28, 1999, to provide you with an estimate of your proposal to increase the annual limitation on deductible contributions to individual retirement arrangements ("IRAs").

[2] Under present law, an individual who is not an active participant in an employer-sponsored retirement plan may make a maximum deductible contribution to an IRA equal to the lesser of $2,000 or the individual's earned income. If both a taxpayer and the taxpayer's spouse, filing a joint return, are not active participants in an employer-sponsored retirement plan, they may make an annual deductible IRA contribution up to $4,000. In addition, individuals who are active participants in an employer-sponsored retirement plan and have income below specified limits may make tax deductible contributions to an IRA. For example, in 1999, a couple filing a joint return with adjusted gross income ("AGI") less than or equal to $51,000 may make a deductible contribution to an IRA up to $4,000 even if both the taxpayer and the taxpayer's spouse are active participants in an employer-sponsored retirement plan. For joint filers, the deductible IRA contribution is phased out for taxpayers with AGI between $51,000 and $61,000 in tax year 1999. If an individual is an active participant in an employee-sponsored retirement plan and the individual's spouse is not, the maximum deductible IRA contribution for the individual's spouse is $2,000 for taxpayers with AGI up to $150,000. The IRA deduction for a non- participating spouse is phased out for taxpayers with AGI between $150,000 and $160,000.

[3] Your proposal would increase the maximum IRA deduction under section 219(b)(1) from $2,000 to $5,000 effective for taxable years beginning after December 31, 1998. For purposes of estimating your proposal, we have assumed that it would be enacted on June 30, 1999. We estimate that your proposal would have the following effect on Federal fiscal year budget receipts:

                            Fiscal Years

[4] I hope this information is helpful to you. If we can be of further assistance in this matter, please let me know.

Sincerely,