Obama's New Budget Proposal: $3 Million Cap on IRAs

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By Ken Berry

The new budget plan that President Obama will unveil on April 10 includes an unprecedented tax whammy for retirement savers: A new $3 million cap on IRA assets and other tax-preferred retirement accounts. The Obama administration projects that this tax law change would raise $9 billion in revenue over the next decade. 
 
The proposal may be mildly surprising, but it's not shocking. "It's one of the ideas that we need to look at as we need additional revenues," said Representative Sander Levin (D-MI). The issue surfaced last year when it was revealed that Republican presidential candidate Mitt Romney had over $100 million socked away in an IRA at one point, presumably due mainly to his fortuitous investments in Bain Capital.
 
Currently, there's no limit on the amount a taxpayer can earn inside a tax-sheltered IRA. If you contribute to a traditional IRA, the annual contribution for 2013 is limited to $5,500 (up from $5,000 in 2012), plus you can add another $1,000 if you're age fifty or over. The same limits apply to contributions to Roth IRAs or any combination of traditional and Roth IRAs.
 
Usually, a taxpayer wouldn't accumulate anywhere near $3 million by contributing annually to an IRA. But self-employed business people, including professionals like physicians and attorneys, may contribute up to $51,000 to a Simplified Pension Plan-IRA (SEP-IRA) for 2013. For these individuals, it's a lot easier to approach or exceed the $3 million mark without extraordinary measures.    
 
Similarly, employees who work for a company with a 401(k) plan can elect to defer up to $17,500 of salary to the plan, plus another $5,500 if age fifty or over. Also, retiring employees often roll over 401(k) assets tax-free into a traditional IRA.
 
A $3 million cap would be enough to finance annual payouts of $205,000 in retirement. On April 5, the White House released a statement contending that certain wealthy individuals can "save many millions of dollars in these accounts, substantially more than is needed to fund reasonable levels of retirement saving." The implication is that accumulations providing payouts exceeding $205,000 is "unreasonable." 
 
Thus far, we have no details on how the proposed cap would work. The White House hasn't said if the government would tax accumulations above $3 million or prevent retirement savers from contributing to their accounts once they reached the threshold. It's also unclear whether the cap would affect Roth IRAs. Because Roth IRA owners have already been taxed on amounts converted from a traditional IRA, qualified distributions from a Roth in existence at least five years are 100 percent tax-free. If Roth IRAs are exempted from a $3 million cap on IRA and plan assets, it would make this retirement device even more attractive.
 
Of course, any imposition of a dollar cap on retirement savings is a long way from occurring. Taxpayer advocates and other groups are already lining up to protest the proposed change.
 
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The assumption of $200K income on $3M investment is based on an annuity, which means everything you saved dies with you - nothing left for spouse. At 3% risk free rate you generate $60k/y - Obama can you live on that? I saved much more than $3M via wise investments, contributing only $2k/y. The proposal is an attack on middle class people who save and invest. Capping the account at $3M will ensure that it drops well below this number for those who invest the account in the market. Don't attack the middle class.

Is obama going to live on 200k a year when he "retires" in 2016???

You are probably a bot of the super-wealthy. You saved more than $3 million just saving $2,000/year? Give me a break... what are you 150 years old?

Jack, it is possible to really grow money via investing. Investing $2K/y since 1976 will generate $3.5 M at a 16% rate, $10M at a 20% rate. The key is stock picking. Small investors have an advantage if they spend time researching, have a high risk tolerance are very selective in their picks and employ stop losses to limit losses and diversify. Over the long haul its as or more important than the wages you earn. I wish you the best.

I am very glad for you that you have something for retirement. You are the wise one but this President wants to PUNISH anyone that is willing to do the right thing and take care of themself. Self reliance is punished and sit on your butt with your hand out is rewarded. What is happening to our country? The tax code is bad enough with all its attempts to regulate behavior, now, you are punished repeatedly. I am sick sick sick of all this. I wish you the best Gary. I do not think Obama should keep attacking people of your ability.

OBAMA is a dumbazz - FLUNKED econ 101~~~

Does B.O. not get that Robin Hood isn't what the US government needs. It's spending less that will get us out of trouble.

More/more regs placed on the middle class while the wealthy have to pay fewer/fewer tax dollars. Do this jerks REALLY think we're all THIS stew-pit?

First,
how many Middle Class Families do you know that earn 3 Million dollars from an
IRA in their lifetime? If they earn that much, they are no longer art of the Middle
Class. Secondly, that is just one means of earning money. There are many other
ways to earn money for retirement than IRA's. So unless you are opposed of
9-Billion Dollars to help pay down the deficit, then I suggest you STFU and
guessing from your grammar, I suspect you don't have a clue anyway.

First, how many Middle Class Families do you know that earn 3 million dollars from an IRA in their lifetime? If they earn that much, they are no longer part of the Middle Class. Secondly, that is just one means of earning money. There are many other ways to earn money for retirement than IRA's. So unless you are opposed of 9-Billion Dollars to help pay down the deficit, then I suggest you STFU and judging from your grammar, I suspect you don't have a clue anyway.

First, it only took you two years to reply to a comment made in English? Secondly, my thinking might have even changed during that time. So, unless you're opposed to folks learning things in two years, you might wanna (sorry - want to) rephrase things. Don't you know to define an acronym before using it? IMHO YOU should STFU!!

I am 62 years old. I had to use my entire life savings for health reasons already. A whopping $23K. So even though this does NOT affect me and never will, I am livid at the idea. It is nothing more than another loss of freedom. I am so sick of all the "mandatory" ideas. The only thing that should be mandatory is everyone paying a FLAT income tax to have a strong defense for our country. The government needs to quit trying to be our parent, big brother, etc. I just can not believe how our freedoms keep disappearing. Is everyone in DC on drugs? Go to a FLAT tax, repeal ObamaCare, restore our freedoms, secure our borders, build our military and defense as we are going to need them. Things like this article make me want to scream.