Financial adviser presses for new tax code to help replenish savings

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For those who step out of the work force to raise a child or care for a family member, there is a price to pay when it comes to retirement savings.

That's because caregivers -- most often women -- cannot contribute to individual retirement accounts while they are not earning money, creating a gap that makes retirement less secure.

One Santa Barbara, Calif., financial adviser has become an advocate for changing the tax code so people in that situation can make catch-up contributions to their retirement accounts when they return to work.

Missing out on an opportunity for tax-deferred investment growth puts those people at a disadvantage at a time when very few employers still have defined-benefit pensions and Social Security benefits are expected to run out.

Now should be a time for encouraging people to invest for their retirement, said Vanessa Patterson, chief financial officer and board chairwoman for Monarch Wealth Strategies in Santa Barbara.

"The issue is going to be getting worse," she said, mentioning that this "sandwich generation" is faced with caring for children and elderly parents.

"My idea isn't something that will fix the whole problem, but it is a start in the right direction," she said.

It would mean that a 30-year-old leaving the workplace to care for children or parents and then returning a few years later could make catch-up contributions upon returning to work, giving that money years of future growth before retirement.

Under the current system, catch-up contributions are allowed only after age 50. Patterson recognizes that the tax code is complex and there are a lot of details that would have to be hammered out before a change could be made.

In today's economy, the change could affect even more people as many workers who cannot find jobs are halting their searches to care for their children instead of paying for day care or moving in with parents to help them.

Jan Cross of Santa Barbara, a client of Patterson's, was involved in caring for her grandmother and mother for 28 years. While she didn't stop working -- "I needed to earn as much money as I possibly could to pay for their care," she said -- her experience makes her a strong supporter of Patterson's proposal. She said she couldn't believe it wasn't already being done.

"It seems like it's a matter of fairness for those people who want to take care of their families," Cross said.

It's a way to make sure people watch out for each other without being penalized.

"People really need to take a look at what is important in our society," she said. "The ability to take care of each other is really key."

While a gender gap is often referred to in retirement savings, the data is difficult to come by. Steve Blakely, director of communications and managing editor for the Employee Benefits Research Institute, said a breakdown for retirement assets by gender isn't available.

Instead, the data often looks at the wage gap between men and women and the years they spend in the workplace.

The institute is a nonpartisan, non-advocacy organization, but Blakely did offer one comment on the proposed change to catch-up contributions -- it would be fairly difficult to administer because there are so many different individual situations.

"That would make it difficult to apply this in any kind of consistent way," he said, noting that the current system based on age is very simple and uniform.

A single mother and a stay-at-home mother whose spouse has a high income are in very different situations, he said.

There's also the question of whether people eligible for the catch-up contributions could afford them at the time they return to work.

Patterson said the response she has had so far to the idea is positive. She's found the ear of U.S. Rep. Lois Capps, D-Calif., whose office is looking into the idea.

"We appreciate her reaching out to the congresswoman regarding the issue and her ideas about it," said Emily Kryder, communications director for Capps.

Patterson said it is an idea that crosses party lines.

It allows people to be more accountable for their retirement savings, encourages family values and helps to even out the playing field.

Caregiving is hard work and this is a way to show it is valued, she said.

Women, who tend to live longer than men, are typically more conservative in their investments and work an average of more than 10 years less than men. The idea is to improve their opportunity to save for those retirement years, she said.

"My whole goal there is to just allow people to be as successful as possible," Patterson said. "To set up the system so that we're promoting self-accountability and giving people options and letting them know, ultimately, their retirement benefits are resting on their shoulders."

(Contact Allison Bruce of the Ventura County Star in California at abruce(at)vcstar.com.)

(Distributed by Scripps Howard News Service, www.scrippsnews.com.)