$3.4 million provides $210,000 annual retirement income?

[robnplunder]

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.

 

[Big_Hitter]

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

 

[Big_Hitter]

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?

 

[Big_Hitter]

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?

 

[Alan]

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

 

[clifp]

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

 

[Chuckanut]

Fix the AMT first

 

[robnplunder]

"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.

 

[adrift]

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.

 

[daylatedollarshort]

"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.

 

[mpeirce]

> enough, it estimates, to provide an annual income of $210,000 in retirement

I think we have a definition of "rich" here:

$210,000.01 annual income

 

[pb4uski]

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?

No one would be penalized. It is just beyond a certain point tax deferral would no longer be available. Why should a couple with $6.8 million of retirement savings continue to get to continue to save for retirement on a tax-deferred basis? They can still save for retirement, just not subsidized by taxpayers.

At a 4% WR that would be $272k a year. Cry me a river but no sympathy from me.

 

[harley]

For the record, inherited ROTH's are subject to RMDs.

Roth IRA Required Minimum Distribution (RMD) | RothIRA.com

Thanks, I hadn't understood that properly. Still, leave your multi million dollar Roth to a grandkid or six, and they can take distributions based on their life expectancy. That should still allow their Roths to grow even larger than the original. They may not be able to take over the world, but can still build a nice untaxable nest egg.

 

[Alan]

Thanks, I hadn't understood that properly. Still, leave your multi million dollar Roth to a grandkid or six, and they can take distributions based on their life expectancy. That should still allow their Roths to grow even larger than the original. They may not be able to take over the world, but can still build a nice untaxable nest egg.

I hate to be pedantic Harley but a non-spouse inherited ROTH (child, grandchild etc) has to be withdrawn over the next 5 years, so not much scope for growth.

 

[Greencheese]

As a country already looking at an impending retirement crisis, are they really going to focus on a handful of people with "excessive" funds instead of the real issues? It was said earlier on this board that preventing people from investing in alternative investments would essentially prevent any issues altogether.

 

[Independent]

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.

According to this link, President Obama’s 2016 budget targets retirement accounts - MarketWatch
the only impact would be that you couldn't make additional contributions when you are over the cap.
There is no mention of forced withdrawals.
See #6.

 

[Independent]

Call me a cynic, but I'd bet that they'd "neglect" to index it.

The $210,000 isn't a new number created just for this proposal. It's the upper limit on defined benefit pensions that's been around for some time.

That limit is already indexed. This indexing was established by the EGTRRA in 2001. http://www.americanbenefitscouncil.org/documents/egtrra_provisionschart061206.pdf

So if Congress "forgets" about indexing, it would be indexed. They would have to deliberately un-index a number that's already indexed.

Of course they could do that, but they could also do that with every indexed number they have.

 

[growing_older]

Right now the IRS doesn't collect any information about the balance of any of our accounts.

Actually they already do collect annual balance information for all IRA accounts for any taxpayer who has deductible and non-deductible contributions in any combination of IRA accounts. It's a small stretch to them wanting this info for all accounts and they are fresh off of consolidating cost basis info reporting for all non-retirement accounts.

 

[travelover]

As a country already looking at an impending retirement crisis, are they really going to focus on a handful of people with "excessive" funds instead of the real issues? .........

Yea, it's just like I told that cop that gave me a speeding ticket. "Why aren't you out chasing real criminals?"

 

[samclem]

It was said earlier on this board that preventing people from investing in alternative investments would essentially prevent any issues altogether.

Seems a lot more straightforward and a lot less intrusive--to the degree there's an "issue" at all. But I don't think it would accomplish the true underlying objective of this proposal.

 

[Big_Hitter]

Disregarding the logistics of how this would work in practice, the problem, as I see it, with this proposal would be to limit deferrals on an annual basis using projected balances based on statutory assumptions.


This process would result in chopping off the top of the "peaks" during the accumulation period without lifting the "valleys".

 

[Big_Hitter]

No one would be penalized. It is just beyond a certain point tax deferral would no longer be available. Why should a couple with $6.8 million of retirement savings continue to get to continue to save for retirement on a tax-deferred basis? They can still save for retirement, just not subsidized by taxpayers.

At a 4% WR that would be $272k a year. Cry me a river but no sympathy from me.

Did you read the PDF on post 37?


They would be penalized during the accumulation period...during their 30s, 40s, 50s...etc. There will be plenty of crying.

 

[haha]

Right now the IRS doesn't collect any information about the balance of any of our accounts. This proposal changes that and provides a new "in" to allow taxation based on assets rather than income. Some people think that is great. I don't.

The history of our tax code makes it clear that this new way to discriminate (based on wealth and not income) and to differentially tax using this method will not remain restricted to "the rich". Of course, maybe it will be different this time. . .

IRS does get annual 5498 report, which give year end balance in all IRAs, including Roth's. These reports also give data on ones beneficiaries, and detail the year end portfolio.

Ha

 

[GrayHare]

I hate to be pedantic Harley but a non-spouse inherited ROTH (child, grandchild etc) has to be withdrawn over the next 5 years, so not much scope for growth.

That is not true, hence Ed Slott's Stretch IRA concept.

 

[clifp]

No one would be penalized. It is just beyond a certain point tax deferral would no longer be available. Why should a couple with $6.8 million of retirement savings continue to get to continue to save for retirement on a tax-deferred basis? They can still save for retirement, just not subsidized by taxpayers.

At a 4% WR that would be $272k a year. Cry me a river but no sympathy from me.

Of course you are penalized. Saving Sam (aka most forum members) maximize his 401K and makes wise/luckily investment choice. His retirement saving is also aided by his employer who make contribution to his 401K and/or put aside money for a defined benefit plan.

Shortly after turning 50 interest rates rise, changing the discount and putting him over the limit. Not only can't Sam add any more to his 401K but neither can his employer. How is this not penalizing Sam.

I suspect that most successful folks in law enforcement, military service, and probably many state employees, nearing 50 who have 25-30 years of service and also have contributed to their TSP/401/403 are probably near the limit now, if interest rate increase a couple of percent.

In fact if you are eligible for a 5,000+/month pension at age 50 and you have more than ~$750,000 in deferred savings than you have hit the cap congratulations. Each $1,000/month in pension is worth roughly $265K in savings.