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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
Jim Johnson
May 20, 2013 at 6:20 pm

My arithmetic is poor, I admit, but in my IRA, I was only allowed to deposit $2000 tax deferred each year. How in the world could you get to millions of dollars in an IRA account? The stock market hasn't done that well.

JACK
May 20, 2013 at 1:34 pm

WHY SHOULD THE GOVERMENT CARE HOW MUCH MONEY I PUT AWAY FOR RETIREMENT?
I WOULD ALSO LIKE FOR SOMEONE TO TELL ME WHERE I CAN GET A 6 1/2-7% RETURN ON MY MONEY, I FIGURE THAT IS WHAT YOU WOULD HAVE TO GET TO HAVE AN ANNUAL INCOME OF 205 THOUSAND INTREST OFF OF THREE MILLION DOLLARS.

WELL SAID RALPH

David
May 18, 2013 at 9:43 pm

Well said Jen !!!!!!

Ralph
May 18, 2013 at 6:03 pm

For all those people like Ryan, when taxes are collected only because you have become successful, they are a punishment. Also, Romney paid his taxes on money he earned, the majority of money in his retirement account is money on which the taxes were paid. At best only $50000 per year max could be put away tax deferred. Money that grew in his investments and which is taxed when he takes it out is being doubly taxed. Finally, for all you jealous petty individuals who complain about this, Romney has paid more percentage wise and in actual dollar amounts than you will ever come close to paying, so please spare me and everyone else your communist dogma whining.

The government needs to be held accountable for its mismanagement of our tax dollars and needs to know that it serves us and that we are not simply here to be taxed to death so Washington blowhards can fritter it away on whatever suits their fancy.

mike
May 18, 2013 at 4:23 pm

Taxes are DEFERRED, that means when he retires and starts to take a distribution, he pays taxes on what he takes out.

Isn't that better than what the guy who started facebook did? leave the country will all his millions and not pay ANY taxes?

Ryan
May 17, 2013 at 4:37 pm

Paying taxes isn't a punishment. The fact that your retirement savings are tax free (or tax deferred, or whatever) means that you are being subsidized by others who are paying taxes.

What exactly is the problem with "only" having $3 million of subsidized retirement savings?

John
May 17, 2013 at 3:02 pm

Jen, Pat, & Ted,

While I agree that Romney should not be penalized for being successful (nor anyone for that matter) his parents were on welfare for a period when Mittens was a kid. So he did benefit from food stamps growing up, and should have no qualms about paying taxes, especially since he can more than afford it now.

Politics aside, this would be a terrible plan for younger folks such as myself, as the article notes. I'm 31 and max out my 401K every year ($17,500), and my fiancé maxes out her Roth IRA ($5500). If I retire at 65, we will have $5 to $10 million saved in our retirement accounts depending on growth rates. My personal estimates are much higher, but I'm an optimistic MBA with a decent grasp on financial decision making. Either way, lets just call it $5 million. Research tells me that with inflation, I will need $2 to $3 million in retirement to last 25-30 years.

If I earn more than $3 million in my investments, I definitely do not want to be punished and risk leaving a legacy for my (future) children. I would think that in the unlikely chance that this gets through the budget, the ceiling would raise every few years in the same way Social Security and IRA annual contribution limits do to adjust for inflation.

So really at this time, it affects very few individuals, and let's face it, if you already have $3 million in your retirement in today's dollars, you're doing very well. And chances are you have other vehicles for investments, so really this wouldn't affect anyone in the short-run.

Ted
May 17, 2013 at 1:25 am

I agree with Pat!

Pat
May 15, 2013 at 7:30 pm

I agree with Jen.

Jen
May 15, 2013 at 4:59 pm

So what if Romney had a lot in an IRA. The man earned his moey and saved it to retire. Why should he be penalized because he is successful? Unlike half of the Americans in thi Country, he didn't live on food stamps and unemployment. He worked for a living, paid taxes to pay for those on food stamps and unemployment. If it weren't for successful people, there would be no money for those programs. We are far from rich, but do not begrudge the success of others, unlike a lot of the people in this Country.