Your tax-deferred retirement dollars could be worth more to you next Jan. 1--and could help you with the mortgage payments on your next home purchase--if support for significant legislation just introduced on Capitol Hill mounts this spring.
The Mortgage Retirement Account (MRA) act of 1983--unveiled last week by Senate Housing subcommittee Chairman John Tower (R-Tex.) and co-sponsored by 16 Democrats and Republicans--could offer sizable benefits to renters and owners, well before they even think of retirement.
The bill would allow taxpayers to devote all or a portion of their tax-deferred Individual Retirement Account (IRA) investments to either of two currently prohibited purposes.
Renters and homeowners could set aside $2,000 a year (or $4,000 for a working couple) of their income toward the down payment for a new principal residence (either resale or newly constructed). The money would not be taxed so long as the owners remained in the house, reinvested their funds into a new principal residence, or shifted their funds into traditional IRA investments such as a money fund, savings account, bonds or other securities.
If the owners sold the house without reinvestment any time after age 70 1/2--or a surviving spouse died after that age--then and only then would Uncle Sam ask for tax payments on the MRA portion of their equity.
Owners who wish to own their home debt-free faster could use all or part of their IRA eligibility to "pay down" their mortgage principal. Rather than sending monthly checks for principal and interest for 30 years, in other words, a family could choose to put up to $4,000 a year toward early retirement of their loan--and be through with all payments in one-third to one-half the usual number of years.
A $2,000 annual tax-deferred contribution toward principal reduction on a 30-year loan of $50,000 at 12 percent, for example, would cut the term of the mortgage to 11 years, 2 months. It also would cut the family's 30-year interest payments by an eye-opening $116,000. All of the money the family invested in the pay-down--approximately $22,000--could be tax-deferred until retirement, just as in regular IRA accounts.
Sen. Tower's MRA concept resembles other tax-deferred housing-account plans that have been proposed by members of both parties of Congress during the past several years. Unlike those bills, however, Tower's idea has the potential to attract wide political support on both sides of the aisle. There's even a chance it would escape the wrath of the largest institutional nay-sayer in the country when it comes to tax deferrals: the U.S. Treasury.
For starters, Tower's plan isn't aimed solely at first-time buyers, the focus of most earlier legislative efforts. The MRA is open to anyone who's qualified to create an IRA, ranging from long-time homeowners to young single renters. By broadening the permissible categories of qualified IRA investments to include mortgage on principal residences--and permitting taxpayers to mix their objectives in any given year--Tower significantly broadens the popularity of his plan.
The MRA has drawn advance endorsements from key trade groups active on Capitol Hill, ranging from lenders to home builders and realty brokers. Lenders only can cheer at any plan that simultaneously broadens the market for IRA accounts--one of their financial mainstays--and encourages early payoffs of long-term mortgages (the bulk of which carry low rates of interest).
But what about the federal tax-revenue losses that could be chalked up to Tower's concept? Won't the income taxes the Treasury is prevented from collecting deepen the federal deficit? Won't that turn the Reagan administration against the MRA?
Not necessarily so. The Treasury says it has to study the idea before commenting on it, but Tower believes he's got a shot at "at least neutrality from those folks, if not love at first sight."
He has a reasonable basis for that view, too. He compiled preliminary data that suggest the MRA actually would increase revenues over time because many homeowners would opt for accelerated payoffs of their mortgages. Because mortgage interest is tax-deductible--to the tune of $15 billion a year in lost revenues--"we'd actually begin to help save some of that" by instituting the MRA option, he insists.
Add to that the annual tax revenues generated by increased construction, plus other economic activities spurred by the MRA's "forced-savings program," and "I think we'll be collecting more, rather than less, in the way of income taxes," the senator said.
Tower has one other ace in his hand on this housing bill, though. He is a close philosophical ally of the tight-fisted Treasury Department and a strong conservative supporter of the Reagan administration on defense spending. In other words, he's built up political capital to be used on issues he thinks are important.
Will that count when it comes time to decide whether there will be--or not be--an MRA on the books by next January? "Well, now," Tower said with a Texas drawl and a twinkle, "I certainly would expect so."