Under his plan, the investor could choose between initial deductibility or tax-free withdrawal, but the measure seems to face very long odds.

It would also allow individuals to set aside $2,000 a year in an individual retirement account and to make tax-free withdrawals at the time of retirement.

That account would allow tax-free withdrawals for any purpose and at any age.

The 10% additional tax on distributions made before you reach age 59 does not apply to these tax-free withdrawals of your contributions.

But the tax-free withdrawals were set to expire at the end of 2010.

Those tax-free withdrawals are a generous government subsidy.

The Packwood proposal includes a plan to permit tax-free withdrawals from individual retirement accounts once their owners reach the age of 59 1/2.

Also, tax-free withdrawals can be made through internal policy loans offered by the insurance company, against any additional cash value within the policy.

And younger workers who expect to be in a higher bracket at retirement also stand to benefit from tax-free withdrawals.

The proposed new individual savings accounts, by contrast, have their tax advantages built into the future, as tax-free withdrawals.