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Update (4/10/2013): Treasury has released its explanation of administration proposals (Green Book). See PDF page 175 of this document:
http://www.treasury.gov/resource-center/tax-policy/Documents/Gen...

Main thrust seems to be to prevent any more accounts from exceeding the limit, vs. imposing penalty/forced withdrawal on those with existing high balances.

+++

From Mike Allen's "Playbook" at POLITICO, quoting a senior administration official regarding provisions to be included in Obama's budget proposal next week. --

“Sets limits on tax-preferred retirement accounts for millionaires and billionaires: The budget will also show how we can provide targeted tax relief to strengthen the economy, help middle class families and small businesses and pay for it by eliminating tax loopholes and make the tax system more fair. The budget will include a new proposal that prohibits individuals from accumulating over $3 million in IRAs and other tax-preferred retirement accounts. Under current rules, some wealthy individuals are able to accumulate many millions of dollars in these accounts, substantially more than is needed to fund reasonable levels of retirement saving. The budget would limit an individual’s total balance across tax-preferred accounts to an amount sufficient to finance an annuity of not more than $205,000 per year in retirement, or about $3 million in 2013. This proposal would raise $9 billion over 10 years."

http://www.politico.com/playbook/0413/playbook10370.html

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Most Recent Posts
If you hit the $3M, you give up the company match on the 401k?

ellory (Apr. 15, 2013 @ 5:55p) |

Yes, its sound like that might be the case. And to make it worse (or at least harder to plan for) since it is based on ... (more)

secstate (Apr. 15, 2013 @ 6:14p) |

A boon for the non-qualified deferred comp industry I suppose.

xerty (Apr. 24, 2013 @ 12:10p) |


"This proposal would raise $9 billion over 10 years."

No, because those wealthy enough to have $3 million in tax deferred accounts will find other ways to shelter income.

The Romney Rule

longwood8 said:   No, because those wealthy enough to have $3 million in tax deferred accounts will find other ways to shelter income.

$3 million is a lot less than you think it is. Consider: $40k annual contrib for 40 years at 4% c.a.g. is $3.8m.

tuphat said:   longwood8 said:   No, because those wealthy enough to have $3 million in tax deferred accounts will find other ways to shelter income.

$3 million is a lot less than you think it is. Consider: $40k annual contrib for 40 years at 4% c.a.g. is $3.8m.
IRA is capped at 5k a year.

More people than you think. Include 401k, and inherited IRAs

1) How does more than $3 million in produce an annuity that drive $205,000 per year in retirement?
2) If this survives at anything close to this dollar level, we will need strategies

Where do I buy an annuity that pays out 6.8%? I'm not in the market so I've got no idea, is that high or typical?

longwood8 said:   "This proposal would raise $9 billion over 10 years."

No, because those wealthy enough to have $3 million in tax deferred accounts will find other ways to shelter income.


It's always interesting to me how they calculate these things at all levels of government. The estimates seem to assume that tax rule changes have no impact on behavior.

IRA is capped at 5k a year.

This isn't just about IRAs. The limits depend upon the type of IRAs. Don't forget about rollovers into IRAs.

rufflesinc said:   tuphat said:   longwood8 said:   No, because those wealthy enough to have $3 million in tax deferred accounts will find other ways to shelter income.

$3 million is a lot less than you think it is. Consider: $40k annual contrib for 40 years at 4% c.a.g. is $3.8m.
IRA is capped at 5k a year.


Let's see, roll overs from SEP-IRAs, 401(k)s, SIMPLE IRAs, 403(b)s, defined benefit plans, etc. It's possible to accrue/contribute up to $56,500 (for a person older than 50) into a SEP or 401(k) in 2013, and some day have that rolled over into a 401(k).

ETA: Also, the 2013 IRA limit is $5,500. Add the IRA contribution limit and catch up, one could contribute a combined $63,000 to retirement accounts -- assuming that they don't have access to a defined benefit plan (then I'd be even more).

tuphat said:   .....substantially more than is needed to fund reasonable levels of retirement saving.....

Why does the government get to decide this? This is not a role I want the government to have. I don't need that much, but the governmet putting a ceiling on savings is dumb and unnecessary.

I suspect that there is another agenda at work here, that they won't discuss publicly.

HawkeyeNFO said:   tuphat said:   .....substantially more than is needed to fund reasonable levels of retirement saving.....

Why does the government get to decide this? This is not a role I want the government to have. I don't need that much, but the governmet putting a ceiling on savings is dumb and unnecessary.
They are giving you tax benefits, of course they can cap it at whatever number they want.

CSREwallet said:   The Romney Rule

Romney actually made a mistake with his account. He converted lower capital gains rates into higher ordinary income taxes when he loaded his IRA with likely Bain partnership stock.

He'll end up owing more taxes with this over the long term.

What I see is more incentive to convert to ROTH here if you can do so and you stay under a bracket. 3 mill as Roth vs 3 mill traditional is a significant difference.

Paging Geo123, I'm not going to gloat right now. And you and me both know this proposal by the Obama administration has no chance in hell of becoming law, but apparently my prediction was almost dead on that they would go after qualified money targeting bigger qualified accounts.

So much for the idea that the notion is completely illegal and unconstitutional, right(I may actually agree with you, but it doesn't mean that if they had the votes they couldn't make it law).

DamnoIT said:   What I see is more incentive to convert to ROTH here if you can do so and you stay under a bracket. 3 mill as Roth vs 3 mill traditional is a significant difference.

I first have to figure out how to get the 3 mil

tuphat said:   longwood8 said:   No, because those wealthy enough to have $3 million in tax deferred accounts will find other ways to shelter income.

$3 million is a lot less than you think it is. Consider: $40k annual contrib for 40 years at 4% c.a.g. is $3.8m.


Yeah and at the commonly accepted 4% safe withdrawal rate that is $120,000 a year. Very nice for sure but hardly the millionaire lifestyle in retirement that folks envision when they think of 3 million.

I wonder if they would just play with the RMD methods to enforce this. Oh and what happens if you got lucky, made a lot then have 3 mill at say 50 - do you still have to pay the 10% penalty for early withdrawal in addition to normal income tax?

HawkeyeNFO said:   tuphat said:   .....substantially more than is needed to fund reasonable levels of retirement saving.....

Why does the government get to decide this? This is not a role I want the government to have. I don't need that much, but the governmet putting a ceiling on savings is dumb and unnecessary.

I suspect that there is another agenda at work here, that they won't discuss publicly.


Government is not putting a ceiling on savings, but just limiting the tax expenditure on giving preferential tax treatment to income above a certain level. That's within the taxation policy authority of government.

That being said, $3M seems low, esp. if it were not indexed for inflation and will come to apply to everybody, much like AMT went from tax on super-high earners with smart tax shelters to a tax that mostly bites the middle class.

Rufflesinc, you can keep on giving red it doesn't mean that people aren't going to shake their head when they read your post.

While I disagree with this type of government thinking, It's not as if they are saying you can't save. Just put the rest of your savings in a taxable account and call it a day.

They need to do like Canada... save money, it's taxfree -- just put it in savings. Of course that would be too 'progressive' for us.

HawkeyeNFO said:   tuphat said:   .....substantially more than is needed to fund reasonable levels of retirement saving.....

Why does the government get to decide this? This is not a role I want the government to have. I don't need that much, but the governmet putting a ceiling on savings is dumb and unnecessary.

I suspect that there is another agenda at work here, that they won't discuss publicly.


Government isn't deciding how much you get to save; it's deciding how much of everyone else's money they're going to give you for saving.

Another push to temporarily boost up tax revenue by making people see Roth as a better alternative than Trad.

ryoung81 said:   They need to do like Canada... save money, it's taxfree -- just put it in savings. Of course that would be too 'progressive' for us.

They can do that because they also have a VAT which many people feel is regressive. They get their taxes differently than us, but like any government, they will get them one way or another.

I love how every time they make the tax system "more fair" it means they tax wealthy people even more.

dshibb said:   CSREwallet said:   The Romney Rule

Romney actually made a mistake with his account. He converted lower capital gains rates into higher ordinary income taxes when he loaded his IRA with likely Bain partnership stock.

He'll end up owing more taxes with this over the long term.


Can you explain this? If this were the case, why wouldn't everyone invest in a taxable account over a 401(k)?
Does it have to do with the greater delta between capital gains rates and ordinary income rates for Romney vs. the average American?

myhotrs said:   I love how every time they make the tax system "more fair" it means they tax wealthy people even more.

Beats the current system of making the tax system "more fair" by taxing the poor and middle class more, which is what has been happening over the last couple decades.

Does the present value of pensions or other defined benefit plans count towards the $3M?

myhotrs said:   I love how every time they make the tax system "more fair" it means they tax wealthy people even more.

Depends entirely on whether you think the current tax system is fair.

Is it 3 mil per person?

Looking at immediateannuity.com for monthly income 17083k for life , it is about 205k/year
65yo male - 3 mil
65yo female -3.3 mil

Krazen1211 said:   Does the present value of pensions or other defined benefit plans count towards the $3M?

I certainly would hope so. If not, all the govt employees get another perk.

elektronic said:   dshibb said:   CSREwallet said:   The Romney Rule

Romney actually made a mistake with his account. He converted lower capital gains rates into higher ordinary income taxes when he loaded his IRA with likely Bain partnership stock.

He'll end up owing more taxes with this over the long term.


Can you explain this? If this were the case, why wouldn't everyone invest in a taxable account over a 401(k)?
Does it have to do with the greater delta between capital gains rates and ordinary income rates for Romney vs. the average American?


Sure!

The mistake comes from a fundamental misunderstanding about how to look at pre-tax accounts. What everybody does is they look at it holistically from the deduction all the way to the withdrawal in which case it's obvious to see it's value. But when they look at in this way it's easy for them to miss something big and make the mistake that Romney did.

Instead you should see it as essentially 2 separate events that combined are valuable. The first is the deduction(very valuable). The second is once the money is in there 100% of that will be taxed at ordinary income rates in the future(the opposite of valuable--terrible actually, worse than a variable annuity). But the reason why people don't see it as 2 separate events is that in order to get the former benefit you have to take the latter negative. So they just treat it as one overall valuable vehicle.

Instead what they should realize is that once the deduction is taken it's no longer a valuable account from that point forward. You then want your lowest appreciating assets inside of that account and your highest appreciating assets in either Roth accounts or taxable accounts because then they'll either be tax free or subject to capital gains rates. This is why once you get your deduction you want to cram the 401k and tIRA with all of your desired fixed income needs first.

Instead Romney dropped in likely the most appreciating assets he had inside of(likely his firm's SEP at the time) and when it grew astronomically and rolled it to a tIRA all of that appreciation was now going to be taxed at ordinary income vs. had he just held that taxable he would have had basis + cap gains on appreciation or even better yet step up in basis at death.

Does that make sense!

I figured it was more of a very very long term prospect for generations of tax free growth and a possible tax holiday sometime in the next century.

Krazen1211 said:   Does the present value of pensions or other defined benefit plans count towards the $3M?
Not government pensions, you can be sure.

I'm not too worried - when Ben get done setting long term interest rates to 0.1% to help finance their unsustainable spending, a $205k annuity adjusted for 3% inflation needs something like $10M for 30 years.

HawkeyeNFO said:   tuphat said:   .....substantially more than is needed to fund reasonable levels of retirement saving.....

Why does the government get to decide this? This is not a role I want the government to have. I don't need that much, but the governmet putting a ceiling on savings is dumb and unnecessary.

I suspect that there is another agenda at work here, that they won't discuss publicly.


Terrible precedent...

Once you buy into giving the government power to decide how much a person "needs" for retirement it will be easy for them to lower the number a few times especially since they can't control spending.

Then a politician will come along and decide you don't need all that retirement savings but instead someone who lived paycheck to paycheck their whole life does. Or perhaps they decide they should "borrow" those funds for all the social securities promises that can't be met.

dbl118 said:   myhotrs said:   I love how every time they make the tax system "more fair" it means they tax wealthy people even more.

Beats the current system of making the tax system "more fair" by taxing the poor and middle class more, which is what has been happening over the last couple decades.


What is with the red on this? Is it incorrect?

steve1jr said:   dbl118 said:   myhotrs said:   I love how every time they make the tax system "more fair" it means they tax wealthy people even more.

Beats the current system of making the tax system "more fair" by taxing the poor and middle class more, which is what has been happening over the last couple decades.


What is with the red on this? Is it incorrect?


The top 20% wealthiest households pay around 70% of all taxes and that figure has been growing. Bottom 40% don't pay a penny... infact they are actually tax takers rather than tax payers.

brettdoyle said:   steve1jr said:   dbl118 said:   myhotrs said:   I love how every time they make the tax system "more fair" it means they tax wealthy people even more.

Beats the current system of making the tax system "more fair" by taxing the poor and middle class more, which is what has been happening over the last couple decades.


What is with the red on this? Is it incorrect?


The top 20% wealthiest households pay around 70% of all taxes and that figure has been growing.


And they've been getting richer. Boo hoo.

There are very few 401K and IRAs that have 3M+. However there are a lot of six digit public sector pensions that are valued greater than 3M. Obama should go after these.

Skipping 283 Messages...
xerty said:   Krazen1211 said:   Does the present value of pensions or other defined benefit plans count towards the $3M?
Not government pensions, you can be sure.

As expected, a loophole for government employees:

"$3 Million Retirement Cap in Obama's Budget Would Not Apply to Him"
http://www.breitbart.com/Big-Government/2013/04/23/Obama-s-3-Mil...

The limit would not apply to Obama’s own pension, which is worth at least $5 million, because it is not in a tax-advantaged account, according to Brian Graff, executive director of the American Society of Pension Professionals & Actuaries.
A boon for the non-qualified deferred comp industry I suppose.



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