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Fascinating and Informative Discussion.....
Old 04-12-2013, 05:33 AM   #41
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Fascinating and Informative Discussion.....

.... though (sadly) I must confess to drifting off a bit halfway through the thread, since a $3m cap will never be a concern for DH or me. (Most retired school teachers--especially those who worked many years part-time--probably don't amass such funds.)

However, there is much to be learned by reading the posts of the ER's who do. Thanks!
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Old 04-12-2013, 06:54 AM   #42
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Originally Posted by ERhoosier View Post
But at least those individuals know they cannot contribute & can plan accordingly.
This is not true. The IRS requires that testing be conducted annually to ensure that highly compensated employees are not benefiting substantially more than non-highly compensated employees. Plans that fail the tests must make remediation. Sure, they could might make additional contributions only for the lowest-paid employees (yes, that's not only legal, it is specified explicitly as one of the two remedies), but I suspect that it more likely that they'll take the other approach, "Distribution of the Excess", the plan returns the excess contributions to the highly compensated employees.

Ours is not a safe harbor plan. I don't have access to the data, of course, but I don't think our plan is far away from failing the ADP testing. For various reasons, I believe there is a significant probability that I will be told that I have to take an involuntary distribution, this year. But I don't know, and won't know until the end of the year, whether the contributions I've made this year will "stick".

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Anyway this is just a budget proposal.
That's an important point: Saying that the proposal is bad because it doesn't have this provision or this specific detail outlined is silly - it just means that it needs to be amended or clarified. Big difference. I want to see the proposal have indexing to CPI specified, and I want its impact to be limited to limiting current-year contributions in any year after a year where your combined balances exceed the threshold. I think those would be nice amendments.

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I did a quick check for me and DW... to get a joint annuity for both of us for $205K would cost us north of $4.8 mill...
The premise you outlined would be a reason to suggest that the number should be $4.8M instead of $3M or $3.2M. I'm not even sure about that, though, because you priced a joint annuity. The limit is expressed as an individual limit, and so it naturally would be expressed in terms of an individual annuity, regardless of whether or not that fit any one person's own personal preferences.

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Originally Posted by scrinch View Post
IRA's were implemented as a way to encourage people who were not saving for retirement to do so, by giving them a tax incentive (deferral) on that savings. Contribution caps and MRD's were put in place to discourage people from trying to use these accounts to accumulate significant wealth without first paying income tax on it and pass that untaxed wealth on to heirs. Sounds to me like the limits being proposed now are just another way the government is trying to reinforce the original purpose of IRA's...to provide retirement income for those who otherwise might not have any.
This is a very elegant way of expressing it.

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Why should one be punished because he/she chose better investments than others?
I don't see anything about anyone being punished. The proposal is about limiting to whom tax advantage - an incentive - is offered. Not getting an incentive (for something you're clearly aim to do anyway) isn't punishment.
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Old 04-12-2013, 07:16 AM   #43
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Devil will be in the details. But a big saver who dies and wills their IRA to a child will certainly put that child into position to go over $3 million.
+1
I was wondering about inherited IRA's and whether they would be included in the calculation. If so, and if anything like this passes, then I would think our IRA's might be the first thing we should spend rather than the last so as not to impact our children.

Hopefully, something like this bill will be DOA. There seem to always be unintended consequences that our legislators don't think thru IF they even read all the details (which I doubt!).
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Old 04-12-2013, 07:23 AM   #44
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It's not a bill, it's a proposal, which puts it in the same category as a wish list.
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Old 04-12-2013, 07:27 AM   #45
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It's not a bill, it's a proposal, which puts it in the same category as a wish list.
+1

Once it becomes law, then we'll get the bill...
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Old 04-12-2013, 07:33 AM   #46
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It's not a bill, it's a proposal, which puts it in the same category as a wish list.
I suppose I was anticipating it being embedded in some bill.
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Old 04-12-2013, 07:34 AM   #47
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I hate this 'fairness' BS.... a tax should not be imposed to make something look fair...
I guess we see things differently, but to me closing a tax loophole for a certain segment of the population (high networth individuals) is a far cry from imposing a tax.
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Old 04-12-2013, 07:44 AM   #48
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I remember way back when I did taxes.... we had a very successful attorney set up a DB plan... since he was already in his late 50s, he was putting away hundreds of thousands of dollars a year in the plan... his secretary loved it because he had to contribute for her.... but, I do not think there was a limit on how much he could put away except that he had to earn money to pay his salary....
Texas Proud, Years/decades ago, our family business had a defined benefit plan. After decades of our parents putting everything back into the business, it was the one way we could get them decent "retirement money". There wasn't any limit on what could be put in as I recall so you are correct.

After that, we implemented a 401 K instead. Not the same animal that is for sure.
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Old 04-12-2013, 07:45 AM   #49
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I suppose I was anticipating it being embedded in some bill.
Could be, but IIRC that means it would have to come from the House Ways and Means committee, not the White House budget proposal.
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Old 04-12-2013, 07:48 AM   #50
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Most retired school teachers--especially those who worked many years part-time--probably don't amass such funds
Well, I guess part-timers probably do not amass much in the way of pensions, but the proposal does include the value of any defined benefit plan (such as a pension) in the limits. It's of course totally unclear how they figure the value or what happens if the cap is exceeded, or what happens if the combination of future pension and IRA savings exceeds the cap, or vesting, or many other specifics.
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Old 04-12-2013, 07:55 AM   #51
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I hate this 'fairness' BS.... a tax should not be imposed to make something look fair... especially if the expense of that tax costs more to collect than the amount of tax... how 'fair' is that
I tend to agree Texas Proud. Instead of soft pedaling it under the premise of "fairness", call it what it is. Our government needs money to fund all of it's expenditures. This is one way it can get it in current years" rather than waiting 10, 15, 20 years or more.

Again, it is simply "fast forwarding" the tax bill and possibly changing the rules people have counted on the last many decades. More symptomatic that our government has not and can not live within it's means or with current tax revenues. For me, that should be what we are all most concerned about! As it spends even more money, it will need even more in future years.

Disclosure: I do not have that amount of money in any tax deferred vehicle. My comments are about being concerned over the unintended consequences.
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Old 04-12-2013, 07:57 AM   #52
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Well, I guess part-timers probably do not amass much in the way of pensions, but the proposal does include the value of any defined benefit plan (such as a pension) in the limits. It's of course totally unclear how they figure the value or what happens if the cap is exceeded, or what happens if the combination of future pension and IRA savings exceeds the cap, or vesting, or many other specifics.
Are state, federal and Congressional employees exempt in the proposal? Their pensions are worth a LOT of money. ummmm.....
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Old 04-12-2013, 07:59 AM   #53
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I tend to agree Texas Proud. Instead of soft pedaling it under the premise of "fairness", call it what it is. Our government needs money to fund all of it's expenditures. This is one way it can get it in current years" rather than waiting 10, 15, 20 years or more.
It's both, and there's no reason not to promote it as both.
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Old 04-12-2013, 08:00 AM   #54
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Could be, but IIRC that means it would have to come from the House Ways and Means committee, not the White House budget proposal.
Yes and will probably change a lot if it makes it outta there!
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Old 04-12-2013, 08:08 AM   #55
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It's both, and there's no reason not to promote it as both.
Do not think I can agree with this. While I don't disagree yearly caps for contributions are helpful in generating tax revenue, I object to the lifetime cap of 3 million and our government telling us "how much is enough".

Why should they care? Particularly if they receive tax money every year on the excess of what a person can contribute. Why should they limit ANYONE to 3 million?

I am sure there are some out there that can make contributions, pay tax on the income they can not route to a tax deferred vehicle and over the years/decades exceed the 3 million.

Nothing fair about the 3 million dollar cap.
Just my opinion.
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Old 04-12-2013, 08:17 AM   #56
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Do not think I can agree with this. While I don't disagree yearly caps for contributions are helpful in generating tax revenue, I object to the lifetime cap of 3 million and our government telling us "how much is enough".
That's just it: They are not telling you how much is enough. You can save as much for retirement as you'd like. What they're deciding is how much society should incentivize - how much tax revenue society should do without for the duration, based on how doing so benefits society. The tax advantages offered were originally intended to replace pensions, motivating workers to save for their own retirement, so they don't become so thoroughly dependent on society to afford to live in retirement. Beyond a certain point, society no longer derives that benefit from offering that incentive.

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Why should they limit ANYONE to 3 million?
Again, there is nothing about this proposal that limits anyone to any amount of savings for retirement. That's just a red herring, and seems to be used as a catchy rejoinder by partisans in the press trying to make this proposal sound like something it is not. This is just about limiting the granting by society of tax advantages, not the limiting of retirement savings.

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Nothing fair about the 3 million dollar cap.
Just my opinion.
And my opinion is the opposite, that it is completely fair. We'll just have to agree to disagree.
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Old 04-12-2013, 08:17 AM   #57
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So basically we will still get to keep using an IRA for the first $3 mil and then more than that can still be invested otherwise and not be tax sheltered like we all did with all our retirement savings before IRSs were started in 1974? Not going to lose sleep over this idea.
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Old 04-12-2013, 08:30 AM   #58
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So basically we will still get to keep using an IRA for the first $3 mil and then more than that can still be invested otherwise and not be tax sheltered like we all did with all our retirement savings before IRSs were started in 1974? Not going to lose sleep over this idea.
Even if you have a balance in excess of $3 million you can still reinvest it within the IRA's until it reaches whatever...The only new thing is that you can't add in NEW contributions if you reach $3 million.

It seems like a non-issue, at least to me.
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Old 04-12-2013, 08:32 AM   #59
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Even if you have a balance in excess of $3 million you can still reinvest it within the IRA's until it reaches whatever...The only new thing is that you can't add in NEW contributions if you reach $3 million.
At this time, it's an open question how this would get implemented. It's just a proposal, and it'll surely be refined before it becomes law, if it ever does. Right now, the proposal doesn't say that the impact will be limited to just restricting new contributions. It could theoretically require removal of excess balances, as is the case for 401ks that fail ADP testing, for example. But that's just something that can be changed in negotiations or committee.
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Old 04-12-2013, 08:38 AM   #60
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At this time, it's an open question how this would get implemented. It's just a proposal, and it'll surely be refined before it becomes law, if it ever does. Right now, the proposal doesn't say that the impact will be limited to just restricting new contributions. It could theoretically require removal of excess balances, as is the case for 401ks that fail ADP testing, for example. But that's just something that can be changed in negotiations or committee.
My understanding from reading the actual proposal is that, yes it requires the removal of excess balances. But only those excess balances that were due to new contributions. IOW, only the "illegal" contributions would be removed.

http://www.treasury.gov/resource-cen...ons-FY2014.pdf
If a taxpayer reached the maximum permitted accumulation, no further contributions or accruals would be permitted, but the taxpayer’s account balance could continue to grow with investment earnings and gains.
If a taxpayer received a contribution or an accrual that would result in an accumulation in excess of the maximum permitted amount, the excess would be treated in a manner similar to the treatment of an excess deferral under current law



Do you by any chance have a link showing otherwise?
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