Join Early Retirement Today
Closed Thread
 
Thread Tools Search this Thread Display Modes
How does budget proposal affect retirement accounts
Old 04-05-2013, 08:52 AM   #1
Thinks s/he gets paid by the post
growing_older's Avatar
 
Join Date: Jun 2007
Posts: 2,608
How does budget proposal affect retirement accounts

There are news reports covering the newly proposed budget:

Obama budget to offer program cuts, seek deficit deal: official | Reuters

OBAMA BUDGET includes chained CPI, in effort to revive talks -- HOUSE IMMIGRATION PLAN soon -- ROGER EBERT'S last post -- THE FIRST Playbook Deal du Jour - POLITICO Playbook - POLITICO.com


Quote:
In addition, the president will seek to increase revenues by placing a $3 million upper limit on tax-preferred retirement accounts
Quote:
The budget will include a new proposal that prohibits individuals from accumulating over $3 million in IRAs and other tax-preferred retirement accounts.
I doubt I will ever have that much accumulated, but with inflation and a long life, I could easily see my kids accounts reaching these limits,. Does anyone know any more about this proposal. Is this just a trial balloon? What happens when an account reaches this size? Do they simply allow no more contributions? Per account, or adding all accounts in all the various tax deferred and tax advantaged programs combined? Far too many details needed to understand this for a single sentence in a news report to tell me enough about it. Lots of googling didn't turn up much more detail.
__________________

__________________
growing_older is offline  
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 04-05-2013, 09:21 AM   #2
Thinks s/he gets paid by the post
gauss's Avatar
 
Join Date: Aug 2011
Posts: 1,708
Quote:
Originally Posted by growing_older View Post

Per account, or adding all accounts in all the various tax deferred and tax advantaged programs combined?
From the second link that you provided:

"The budget would limit an individualís 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 implies to me that this is NOT per account, but rather an aggregate limit.

-gauss
__________________

__________________
gauss is offline  
Old 04-05-2013, 09:40 AM   #3
gone traveling
 
Join Date: Mar 2007
Posts: 559
Quote:
Originally Posted by gauss View Post
From the second link that you provided:

"The budget would limit an individualís 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 implies to me that this is NOT per account, but rather an aggregate limit.

-gauss

i don't have 3 million in accounts but i do imagine some do.

doesn't this seem like what happened at cyprus banks
__________________
gerrym51 is offline  
Old 04-05-2013, 09:56 AM   #4
Thinks s/he gets paid by the post
heeyy_joe's Avatar
 
Join Date: Nov 2012
Location: Madeira Beach Fl
Posts: 1,403
"The budget will include a new proposal that prohibits individuals from accumulating over $3 million in IRAs and other tax-preferred retirement accounts".

a.k.a "The Romney Rule".
__________________
_______________________________________________
"A man is a success if he gets up in the morning and goes to bed at night and in between does what he wants to do" --Bob Dylan.
heeyy_joe is offline  
Old 04-05-2013, 10:41 AM   #5
Thinks s/he gets paid by the post
bUU's Avatar
 
Join Date: Dec 2012
Location: Georgia
Posts: 1,902
Quote:
Originally Posted by growing_older View Post
I doubt I will ever have that much accumulated, but with inflation and a long life, I could easily see my kids accounts reaching these limits.
I would hope that if such a rule ever becomes reality that it is, like many other dollar amounts in recent legislation, tied to CPI-U.

Quote:
Originally Posted by growing_older View Post
Is this just a trial balloon? What happens when an account reaches this size? Do they simply allow no more contributions?
Good question, but I think we can rest assured that, at least part of it would be handled the way excess contributions within a year are handled, i.e., no longer being allowed to contribute, and having to back-out excess contributions that you shouldn't have made in the first place, but were allowed to because you didn't inform custodians to stop taking contributions.

I would think, though, to make this operational, that the rule would have to prohibit contributions in any year when the closing balance of all such accounts the year prior (or the year before that, perhaps) exceeded the limit. I don't see anyone expecting people to monitor their account balances as often as, say, I do.

Quote:
Originally Posted by gerrym51 View Post
i don't have 3 million in accounts but i do imagine some do. doesn't this seem like what happened at cyprus banks
Not even a little bit.
__________________
bUU is offline  
Old 04-05-2013, 10:44 AM   #6
Recycles dryer sheets
 
Join Date: Sep 2012
Posts: 62
Quote:
Originally Posted by growing_older View Post
I doubt I will ever have that much accumulated, but with inflation and a long life, I could easily see my kids accounts reaching these limits
The language of the proposal makes it sound like it is inflation-adjusted number, i.e. just like tax brackets, annual IRA limits, etc.
So, you don't need to worry about inflation.
__________________
hsv_climber is offline  
Old 04-05-2013, 10:47 AM   #7
Recycles dryer sheets
 
Join Date: Sep 2012
Posts: 62
Interesting question - does IRS even knows the size of someone's IRA accounts?
I don't think brokerages & banks currently report this info to anyone.
__________________
hsv_climber is offline  
Old 04-05-2013, 10:58 AM   #8
Thinks s/he gets paid by the post
bUU's Avatar
 
Join Date: Dec 2012
Location: Georgia
Posts: 1,902
It's required on Form 8606. There's no reason why that disclosure requirement cannot be moved/copied to some other forms.
__________________
bUU is offline  
Old 04-05-2013, 11:16 AM   #9
Thinks s/he gets paid by the post
gauss's Avatar
 
Join Date: Aug 2011
Posts: 1,708
Quote:
Originally Posted by hsv_climber View Post
Interesting question - does IRS even knows the size of someone's IRA accounts?
I don't think brokerages & banks currently report this info to anyone.
I think it is reported now.

From 5498 - Box 5 "Fair Market Value"
The form typically is mailed to you & IRS in the summer time.

-gauss
__________________
gauss is offline  
Old 04-05-2013, 11:31 AM   #10
Recycles dryer sheets
 
Join Date: Sep 2012
Posts: 62
Quote:
Originally Posted by gauss View Post
I think it is reported now.

From 5498 - Box 5 "Fair Market Value"
The form typically is mailed to you & IRS in the summer time.

-gauss
Good point. But it does not cover all the plans, e.g. it does not cover 401Ks.
__________________
hsv_climber is offline  
Old 04-05-2013, 11:34 AM   #11
Thinks s/he gets paid by the post
bUU's Avatar
 
Join Date: Dec 2012
Location: Georgia
Posts: 1,902
True and neither does Form 8606, but surely the disclosure requirements can be changed. That's a simple matter.
__________________
bUU is offline  
What in the world SWR are they talking about here???
Old 04-05-2013, 11:47 AM   #12
Full time employment: Posting here.
urn2bfree's Avatar
 
Join Date: Feb 2011
Posts: 711
What in the world SWR are they talking about here???

From this article about the President's proposed budget:

Obama budget would cut entitlements in exchange for tax increases - The Washington Post

Quote:
Officials ...would also seek to generate revenue by limiting how much wealthy individuals can accrue in their tax-retirement accounts. Such accounts would be capped at $3 million in 2013 dollars ó which officials say is enough to finance a $205,000 a year income.
How can $3M finance $205,000 a year? That is a 6.8% withdrawl rate. Or are they just taking a flat split of the money over the life expectancy at an assumed age 65 retirement and dividing it? Either way that is ridiculous and misleading. Inflation will reduce if it is not in the market and heaven forbid you outlive the calculation...And even if in the market you cannot expect market fluctuations will allow for withdrawl like that.
Just asking from a math NOT a political standpoint...am I missing something or are they?
__________________
urn2bfree is offline  
Old 04-05-2013, 11:48 AM   #13
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,406
There is already a thread on this so I will merge
__________________
MichaelB is online now  
Old 04-05-2013, 12:03 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 13,251
Be aware that a lot of high paid employees have big retirement accounts...


One of the questions I have is will this cover the non-qualified accounts out there.... I doubt it will... this is where high earners put their money...
__________________
Texas Proud is offline  
Old 04-05-2013, 12:06 PM   #15
Full time employment: Posting here.
urn2bfree's Avatar
 
Join Date: Feb 2011
Posts: 711
So are they saying it will buy an annuity of $205,000/year--presumably which is not adjusted for inflation? Help me out. How does that work? Annuity is prepared to guarantee me $205,000 a year (not adjusted for inflation) from age 65 on if I give them $3Million at age 65?
__________________
urn2bfree is offline  
Old 04-05-2013, 12:32 PM   #16
Thinks s/he gets paid by the post
bUU's Avatar
 
Join Date: Dec 2012
Location: Georgia
Posts: 1,902
I'm not sure the numbers are precise, but they seem pretty close. I just checked a few calculators and they're all in the same range, turning a $3M deposit into a revenue stream of almost $15K per month. Not quite $205K, but close to it.
__________________
bUU is offline  
Old 04-05-2013, 12:46 PM   #17
Thinks s/he gets paid by the post
gauss's Avatar
 
Join Date: Aug 2011
Posts: 1,708
Quote:
Originally Posted by urn2bfree View Post


How can $3M finance $205,000 a year? That is a 6.8% withdrawl rate. Or are they just taking a flat split of the money over the life expectancy at an assumed age 65 retirement and dividing it? Either way that is ridiculous and misleading. Inflation will reduce if it is not in the market and heaven forbid you outlive the calculation...And even if in the market you cannot expect market fluctuations will allow for withdrawl like that.
Just asking from a math NOT a political standpoint...am I missing something or are they?
I would imagine that the "Mortality Credits" would make up a significant part of the 6.8% vs a normal SWR. That is to say, once you buy the annuity, the insurance company keeps the money -- even if you die sooner than average. The funds from the deceased subsidize those who live longer.

-gauss
__________________
gauss is offline  
New President Budget Proposal to Limit Retirement balances
Old 04-05-2013, 12:56 PM   #18
Thinks s/he gets paid by the post
 
Join Date: Sep 2006
Posts: 1,685
New President Budget Proposal to Limit Retirement balances

Obama Wants To Limit Retirement Accounts - Reason 24/7 : Reason.com

For most people this will be a non-issue I would think, but in the future if they do not index this for inflation, it could come into play quite a bit. Will be interesting to see exactly how this would be calculated.
__________________
Running_Man is offline  
Old 04-05-2013, 01:03 PM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
donheff's Avatar
 
Join Date: Feb 2006
Location: Washington, DC
Posts: 8,634
I expect that if something like this was implemented the $3M cap would simply be a limit that would block further tax differed additions to the account from current income. A limit that included growth within the account would be difficult to administer. Excess growth and dividends would have to be withdrawn and saved in a taxed account, would a penalty apply if under 59 1/2?
__________________
Every man is, or hopes to be, an Idler. -- Samuel Johnson
donheff is online now  
Old 04-05-2013, 01:06 PM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,380
Quote:
Originally Posted by hsv_climber View Post
Interesting question - does IRS even knows the size of someone's IRA accounts?
I don't think brokerages & banks currently report this info to anyone.
Look at your year end filings. They get everything; they are not going to let this much money get lost.

Ha
__________________

__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline  
Closed Thread


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 07:49 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.