Retirement Blog

Finance Blogs » Retirement Blog » Obama proposes capping IRAs

Obama proposes capping IRAs

By Jennie L. Phipps ·
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.

Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.
Davd Smith
May 29, 2013 at 11:09 am

Let's not forget Kansas, which is also part of the RED belt of best states in which to live, save a few terrible tornadoes.

May 29, 2013 at 9:11 am


Julia C.
May 29, 2013 at 9:06 am

It won't stop there!

Davd Smith
May 29, 2013 at 3:27 am

RED states rule...economically, socially and politically! The RED BELT is North Dakota, South Dakota, Nebraska, Oklahoma and Texas. These states have the lowest REAL unemployment numbers (not those bogus BLS stats), best tax rates for businesses and the fewest political problems, allowing real business growth.

Davd Smith
May 29, 2013 at 1:35 am

To hell with Obama and the IRS. I just sent another $100K into my offshore non-FATCA account. For those "low-information" voters (yes, that would be you liberals), BING it to find the definition of FATCA. That means the IRS and this president cannot do a thing to get a red penny of my money, since it is totally out of the U.S.' jurisdiction. If I have to pay more than 5% of my income in taxes, than I will continue to pour money into my offshore account (and, 5% is still way too much). So, that will continue indefinitely.

Davd Smith
May 29, 2013 at 1:28 am

Jennie L. Phipps: you are among the liberals who continue to wrongly call Romney one of the "zillionaires" when there are countless liberal (leftist) celebrities like, let's see...Kanye West, Angelina Jolie, etc., etc. So, stop with the Romney bashing. This country would be far better if we had the first REAL BLACK president, which would have been Herman Cain, not this Obama who will be brought down by the mess he has created for this country.

May 28, 2013 at 9:03 pm

And you think Obama and his cronies are capping their retirement at 202,000 ????

May 28, 2013 at 7:20 pm

I'll never see 3M in my IRA but I have been saving for retirement since 1969. If I don't live long enough to use it all I want to leave it to my children to help them own homes and put their kids thru college. I have worked hard and done without many things, new cars, travel, expensive clothes or restaurants. It is simply wrong for the Govt. to now step in and take away what I have spent a lifetime putting away!Don't believe for a minute that it will stop at 3M, once this camel nose is under the tent your savings will go too.

May 28, 2013 at 11:20 am

For years we've been telling people to save, save, save, now we're going to punish people for saving? How much is too much America? When will we finally tell our gov't that THEY are the problem, and stop punishing all of us trying to get ahead with your greed, your thievery, and your hatred of success? The Gov't needs to stop spending out of control.

May 23, 2013 at 11:18 pm

Some people have to use IRAs. If you temp for a living, you might never be able to have a 401K. Why limit people's ability to retire just because they don't have a 401K?