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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
James
May 06, 2013 at 9:03 pm

Maybe the best way to get a lot of money in your IRA is to avoid the government at all costs?

John Perilloux
May 05, 2013 at 10:37 pm

First, taxes have to be paid on an IRA when it is withdrawn. Second, hope and luck is not a plan. You sound like a nitwit, Jennie.

delorean777
May 05, 2013 at 9:35 pm

Perhaps we shouldn't have re-elected President Obama after all? I believe in God and I believe it is God who gives governments (all governments) power. We got what we voted for. That doesn't mean of course that we sit back and allow government to make lousy proposals and make equally absurd decisions...whether in our case the ruling party is Republican or Democrat.

Mike
May 03, 2013 at 9:29 am

This is typical of the Obama liberal thinking. This is the beginning of the slippery slope, because the Obama administration is full of idiots that claim 401k's are "costing" the government billions in tax revenue each year. I guess these idiots don't realize that the accounts are heavily taxed when you eventually make withdrawals. With several of his fringe supporters saying publicly that the government should just seize all of these accounts, I would be scared if I had one.

John Kindle
May 03, 2013 at 12:10 am

People are so unaware it is scary. IRA money is always eventually taxed, if not by the person who placed the money in the IRA, then by the beneficiary of the IRA when that person died. So what's the big fuss about? Doesn't Obama know this or is he just stupid like lots of attorneys. I believe he is just not smart enough to be in the WH. God watch over America while he's president as Obama won't care about what happens to this nation.

Jay
May 02, 2013 at 3:15 pm

The President and First Lady filed a joint return reporting adjusted gross income of $608,611. They paid $112,214 in taxes for an effective federal income tax rate of 18.4 percent and donated $150,034 to charity (about 24.6 percent of their earnings).

KTC John
May 02, 2013 at 1:21 am

I wish people who wrote articles about taxes knew what they were talking about. Romney's and everyone else's IRA account is not tax free or tax exempt. An IRA account is only tax deferred. Romney,you, and I will pay ordinary income tax on every withdrawal from our IRA's and there are mandatory withdrawals starting about age 70. In Romney's tax bracket, that will be substantial, and it keeps the government welfare system operating----subsidizing the immorality of unwed mothers and irresponsible fathers.

Hank
May 01, 2013 at 5:27 pm

This is typical Obama. Get him out of office ASAP before he further ruins this sad Country. The general public needs to vote him out.

Mike
May 01, 2013 at 10:14 am

Romney paid 14% of his income to charities, unlike Obama who paid almost nothing. Romney, like most working Americans who don't live off the taxpayer, believes that the wage earner is the best person to decide just how his money is spent! In addition, 90% of Obama's "income" is taxpayer paid perks like Ait Force one vacations for he and family which are not reproted as income. HIS FAIR SHARE.....just what is that? Whatever, I bet is a ton more than you paid!

Gordon
April 29, 2013 at 10:07 pm

Guess what? I was in the 25% tax bracket last year, but I only paid 11.4% in federal taxes. I must be an elitist just like Obama.

Actually, my total tax divided by my income came out to be 11.4% since I get a personal exemption and standard deduction. Somehow, I think the 18% that Obama paid is the same sort of thing. He did get deductions for charity and such, but his income does put him in the top tax bracket. I wish people wouldn't spout off stupid apples and oranges comparisons and then claim someone gets "special privileges" so they don't have to pay like everyone else. Didn't Mitt Romney's taxes divided by income come out to 11%, and he made a heck of lot more than Obama?

Also, when an IRA is inherited, it isn't tax free. The person inheriting the account must take money out of the account and pay regular income tax on it.