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Obama proposes capping IRAs

By Jennie L. Phipps · Bankrate.com
Wednesday, April 10, 2013
Posted: 5 pm ET

President Barack Obama unveiled his new budget Wednesday, and it included a proposal to cap retirement savings at an amount that would yield an annual annuity payment of $205,000. In today's annuity market, that's about $3 million.

You might recall that last August, in the heat of the presidential campaign, critics bashed Republican candidate Mitt Romney for having what they estimated to be $100 million in his individual retirement account. This Obama proposal is obviously an effort to prevent zillionaires like Romney from amassing that kind of money without paying tax on much of it.

What you should know about social security benefitsFor the most of us, this proposal seems like a big shrug. The Employee Benefit Research Institute, or EBRI, reported that its IRA database at year-end 2011 showed that 0.03 percent of the approximately 20.6 million accounts had more than $3 million in assets. Some people have more than one of these accounts, so in all, 0.06 percent of the total number of account holders and 0.11 percent of account holders who are age 60 or older have more than $3 million saved in tax-advantaged accounts.

It's true that younger workers could feel the impact of this proposal more than those at or near retirement. Looking at the accounts in its database of workers 26 to 35 and assuming "no change in asset allocation over their future careers, real returns of 6 percent on equity investments, and 3 percent on nonequity investments, 1 percent real wage growth, and no job turnover," EBRI says just under 1 percent, or 0.9 percent, of these younger workers would hit the $3 million cap, after adjustments for inflation.

Are you worried yet? Some people are. A few pundits are predicting that this is only the beginning of a government assault on tax-advantaged retirement savings. The American Society of Pension Professionals & Actuaries warns that this change could discourage small businesses from offering retirement savings plans because the boss couldn't benefit as much as he'd prefer. Other pundits say this is a slippery slope and taxes on Roth 401(k)s could be next.

Will these things happen? Maybe, but, personally, I can find lots of more pressing retirement planning risks to worry about. I'm going to keep saving in hopes that I'll be lucky enough to have this problem.

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161 Comments
Toby
June 08, 2013 at 4:38 pm

I thought the contribution limit was $5500 per year? How to get to $3 million? They buy lucky penny stocks with that $5500 every year??

Norm
June 08, 2013 at 9:52 am

This will go on until he proposes and forces a governmental retirement plan. Basically, he is taking the power from the individual...I am a bit suspicious this may lead to Big Government stepping in and controlling our retirement funds.

Michael DeMarco
June 07, 2013 at 12:28 am

Khrushchev said he would take us over without shedding a drop of blood. Obama is making that happen.

elleoop
June 05, 2013 at 9:36 pm

He's charmed most of the media for five years and there is no sign it's going to stop.

elleoop
June 05, 2013 at 9:34 pm

It's called stupid electorate and the dumbing down of America.

david
June 05, 2013 at 12:04 am

It's amazing since Barry has a private fund raising website, that reportedly has raised in excess of 200 million since it's inception. I wonder if all the taxes have been paid? He complains about the one percent but the truth his, he and his globe trotting wife have become the one percent and the site is speculated to be over 500 million by the time 2016 comes around. WHat a hypocrite. Remember...this is the same "man" who claimed anyone under 250k on annual income would never have their taxes increased. Now it is 100k plus. Nothing this man says is truth. It is anything he has to say to get the vote he needs at the time he needs it. How America was duped for another 4 years is truly going to be the long standing mystery of the 21st century.

Joe
June 04, 2013 at 7:34 pm

Come on now Dennis, we all know that President Obama is not in the business of picking winners and losers.

As his track record clearly shows, he only picks the losers.

Dennis
June 04, 2013 at 2:12 pm

I imagine the present value of those lucrative public employee pension payments for many are greater than 3 million, but I bet he is not going to look at those. Seems unfair to target the defined contribution type plans only when there are many people who will have more than 3 million of value in their defined benefit plans, once again he is trying to pick winners and losers based on his political supporters.

John Purvis Jr.
June 03, 2013 at 8:56 pm

You can charm anybody for 15 minutes,after that you better know something.