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Old 02-06-2015, 11:03 AM   #41
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If anyone has more than $3.4M, I am guessing the person is already far better off than having to worry about the proposed 401k limit. He'd certainly have other assets and would have trouble spending down the 401k before he die. I am probably the only one on this but I think the limit should even go lower. 401k's intent is to complement SS which isn't enough for most. It shouldn't be used to accumulate wealth.
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Old 02-06-2015, 11:53 AM   #42
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If anyone has more than $3.4M, I am guessing the person is already far better off than having to worry about the proposed 401k limit. He'd certainly have other assets and would have trouble spending down the 401k before he die. I am probably the only one on this but I think the limit should even go lower. 401k's intent is to complement SS which isn't enough for most. It shouldn't be used to accumulate wealth.
look at figure 2 from the pdf in post 37 - it's far less than 3.4M depending on age
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Old 02-06-2015, 12:19 PM   #43
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What I think: Right now I don't have to take the time and trouble to enter in the balances for all my retirement accounts for the annual IRS data probe. Neither do any of the hundreds of millions of people who file tax returns and have a retirement account. If this idea passes, all these people will have to take the time to do that. It doesn't matter if a person is "close to $3.4 million" or not--everyone will need to supply the data (or how will the IRS know if a person is "close" or not?).
We have an >income< tax, so I can see that I have to provide information on my >income<. Beyond that . . . nope. It just gives another means for mischief-makers to make mischief.
Okay, I see the difference. I'm assuming that I would not have to prove to the IRS that I'm under the limit.

Just like I don't have to prove to them that I didn't withdraw money from my IRA this year, or that the kids I listed as dependents really do meet each and every test for "dependent".

At most, I could imagine a checkbox (like foreign assets) where I can check "No".
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Old 02-06-2015, 12:21 PM   #44
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If anyone has more than $3.4M, I am guessing the person is already far better off than having to worry about the proposed 401k limit. He'd certainly have other assets and would have trouble spending down the 401k before he die. I am probably the only one on this but I think the limit should even go lower. 401k's intent is to complement SS which isn't enough for most. It shouldn't be used to accumulate wealth.
You're not the only one, because I'd vote with you.
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Old 02-06-2015, 12:34 PM   #45
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I've said it on this forum a dozen times: These plans for 'curbing the rich' all make great headlines but miss the fundamental point: the rich just have too many options available to them.

It's financial whack-a-mole. Cut them off in one area and they'll just find another strategy. Even when you think the super rich lose, they win.
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Old 02-06-2015, 12:34 PM   #46
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If anyone has more than $3.4M, I am guessing the person is already far better off than having to worry about the proposed 401k limit. He'd certainly have other assets and would have trouble spending down the 401k before he die. I am probably the only one on this but I think the limit should even go lower. 401k's intent is to complement SS which isn't enough for most. It shouldn't be used to accumulate wealth.
Ummm. No. At least not for DW. She isn't working until 62, so may not have quite that much, but the vast majority of her (and our) assets are in retirement plans. As for difficulty in drawing down before death, our concerns are quite the opposite....

In any event, we aren't losing any sleep over this. Given the odds of it passing, I see the question as being akin to analyzing how many angels can fit on the head of a pin.
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Old 02-06-2015, 03:34 PM   #47
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A few thoughts. In concept, I can agree with the notion of limiting tax deferral after on has accumulated a certain amount. However, they are making it way to complicated as they have a tendency to do.

First, forget about including DB plans. There are fewer and fewer DB plans out their every year (especially contributory DB plans) so their inclusion will become less and less meaningful over time and there are measurement difficulties with DB plans and it doesn't have much of a connection with their stated goal, so forget them.

Second, make it simple. If at the end of the year your 401k, 403b, 457, IRAs, etc. (in other all tax deferred accounts excluding DB plans) exceed $3.4 million then you can no longer contribute. Any contributions between the prior year end and the filing date of the return can be withdrawn with no penalty, but become taxable income in the year withdrawn. If the balance slides back under the cap at the end of any subsequent year then you can resume contributing. If the balance grows faster than the growth of the cap then you will not be able to make future contributions. Make the cap increase with inflation like the tax brackets do.

Third, compliance is self regulated like many things in taxes an is subject to audit. However, if you violate the rule beyond the filing date of the return (including extensions) then make the penalties onerous (similar to the penalties for excess IRA contributions).
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Old 02-06-2015, 03:59 PM   #48
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Originally Posted by robnplunder View Post
If anyone has more than $3.4M, I am guessing the person is already far better off than having to worry about the proposed 401k limit. He'd certainly have other assets and would have trouble spending down the 401k before he die. I am probably the only one on this but I think the limit should even go lower. 401k's intent is to complement SS which isn't enough for most. It shouldn't be used to accumulate wealth.
At the 6% or 8% discount level I'd have already hit the cap. If I had continued working I'd be very close to 4% cap. Why should I be penalized on my employers 401K matching fund, or a pension benefit just because I was good saver and investor.

200K is a lot money to spend by most board members standards, but not necessarily in high cost of living place like the SF Bay Area, or NYC, or Honolulu. I suspect many of us know families making 300,400,500K and spending most all of it, who's sole saving are in 401Ks, or pension plans.

As Table 2 in the PDF shows the amount of money at a given age you can save is highly dependent on the discount rate. In a more normal interest rate environment this rate would fluctuate with the business cycle, thus causing people to have to cut saving during boom times,and allow them to save more recession. Which of course is completely the opposite of what we want high earner to do during a business cycle.
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Old 02-06-2015, 04:02 PM   #49
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10 years from now, I plan to have more than $3.4 in my retirement accounts. I assume that would mean withdrawing all gains every year and pay full income tax?
I would be younger than 59.5, would i also have to pay a 10% penalty on top of that too?

This would really make me have to re-think my strategy. It would probably add a couple years to my current plan.
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Old 02-06-2015, 04:08 PM   #50
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^ you would pay ordinary income and fica/medicare I believe, which you already paid on your deferrals...D'OH...pretty sure there would be no 10% penalty
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Old 02-06-2015, 04:10 PM   #51
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At the 6% or 8% discount level I'd have already hit the cap. If I had continued working I'd be very close to 4% cap. Why should I be penalized on my employers 401K matching fund, or a pension benefit just because I was good saver and investor.

200K is a lot money to spend by most board members standards, but not necessarily in high cost of living place like the SF Bay Area, or NYC, or Honolulu. I suspect many of us know families making 300,400,500K and spending most all of it, who's sole saving are in 401Ks, or pension plans.

As Table 2 in the PDF shows the amount of money at a given age you can save is highly dependent on the discount rate. In a more normal interest rate environment this rate would fluctuate with the business cycle, thus causing people to have to cut saving during boom times,and allow them to save more recession. Which of course is completely the opposite of what we want high earner to do during a business cycle.
I don't see it as penalizing anyone. I see it as plugging a loophole for a program that is intended for a specific purpose. People can still save using other traditional means to build up their wealth.
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Old 02-06-2015, 04:10 PM   #52
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First, forget about including DB plans. There are fewer and fewer DB plans out their every year (especially contributory DB plans) so their inclusion will become less and less meaningful over time and there are measurement difficulties with DB plans and it doesn't have much of a connection with their stated goal, so forget them.
doesn't matter if there are fewer and fewer they are part of the rules...should be fun adding that 100% J&S defined benefit payable at age 62 to the converted annuity value of everything
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Old 02-06-2015, 04:11 PM   #53
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I don't see it as penalizing anyone. I see it as plugging a loophole for a program that is intended for a specific purpose. People can still save using other traditional means to build up their wealth.
it penalizes a crap load of people, depending on the interest rate - did you read the pdf?
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Old 02-06-2015, 04:15 PM   #54
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the "program" was intended to supplement defined benefit and SS income....since most private companies have done away with defined benefit plans, all that's left are DC plans....why would you want to penalize someone for saving as much as possible and investing riskily to maximize his/her balance?
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Old 02-06-2015, 04:17 PM   #55
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Don't forget, these are people who will never need to withdraw from these accounts. And Roths are passed on to heirs outside the taxable estate, with no RMDs and no taxes. They can be rolled into the heir's Roths, then passed on to the next generation. With good planning, no changes in the tax laws (unlikely), and responsible heirs (even less likely), a family could build up a huge untaxable empire and rule the world!

Personally, I see this as a sweet little loophole, and wish I had the juice to make better use of it.
For the record, inherited ROTH's are subject to RMDs.

Roth IRA Required Minimum Distribution (RMD) | RothIRA.com
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Old 02-06-2015, 04:49 PM   #56
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I don't see it as penalizing anyone. I see it as plugging a loophole for a program that is intended for a specific purpose. People can still save using other traditional means to build up their wealth.
401K and IRA where intended to allow people to save for the retirement. The IRS/Congress set up a maximum contributions.

What is the loophole it is plugging?

Now there are loopholes in IRA specifically things like sticking pre-IPO stock in a Roth
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$3.4 million provides $210,000 annual retirement income?
Old 02-06-2015, 05:14 PM   #57
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$3.4 million provides $210,000 annual retirement income?

Fix the AMT first
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Old 02-06-2015, 05:33 PM   #58
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"the White House said. Under the proposal, individuals would be prohibited from contributing to or accruing additional benefits in such accounts once balances reach $3.4 million—enough, it estimates, to provide an annual income of $210,000 in retirement."

All I am reacting to is the above. It's a reasonable (IMO, loophole closing of current 401k) change. If you think that's penalizing your situation, that's your opinion and I heard you.
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Old 02-06-2015, 05:44 PM   #59
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For the record, inherited ROTH's are subject to RMDs.
This thread has been about the "Romney" cap on IRA's. The Obama budget proposal includes many more changes to retirement accounts.

President Obama’s 2016 budget targets retirement accounts - MarketWatch

#3 is to impose RMD's on ROTH IRA's

#8 is to accelerate RMD's for inherited IRA's to 5 years.
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Old 02-06-2015, 05:45 PM   #60
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"the White House said. Under the proposal, individuals would be prohibited from contributing to or accruing additional benefits in such accounts once balances reach $3.4 million—enough, it estimates, to provide an annual income of $210,000 in retirement."

All I am reacting to is the above. It's a reasonable (IMO, loophole closing of current 401k) change. If you think that's penalizing your situation, that's your opinion and I heard you.
I agree that is a more than reasonable cut off point. Most future retirees with that amount in retirement accounts are going to have a house, SS and other assets to live off in retirement as well.
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