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Old 04-12-2013, 08:45 AM   #61
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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?
No, that's the exact link and wording, and the part that people latch onto to project the opposite perspective is: "an accrual that would result in an accumulation in excess of the maximum permitted amount".

I agree with you, in that I doubt that this would go into effect having impact on existing balances at the time it goes into effect.
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Old 04-12-2013, 08:55 AM   #62
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Originally Posted by bUU View Post
No, that's the exact link and wording, and the part that people latch onto to project the opposite perspective is: "an accrual that would result in an accumulation in excess of the maximum permitted amount".

I agree with you, in that I doubt that this would go into effect having impact on existing balances at the time it goes into effect.
OK, I follow you.

If that indeed is the case, which really needs to be spelled out, then I am very much against it. Then, in effect, they are penalizing those people that have done a good job investing.

As other have stated, this is just a proposal and hopefully they will adjust it.
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Old 04-12-2013, 09:24 AM   #63
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Can't get too worked up over this since it is just a proposal subject to changes.

Just don't think it is right if for example a person is hugely successful and by age 40 or so has 3 million in IRA's. While they may still be able to save for retirement in taxable accounts, they will no longer be permitted contributions in any tax deferred vehicle for the next 20 to 30 plus years. Unless of course the market tanks as has often been the case., and they are allowed additional contributions.

That is conceivably a very long time not to be able to defer even one dollar. Some people will fall into that category. So I also see it as affecting the rights of the hugely successful people. Rights they have had in the past. Cap the yearly contribution amounts perhaps but don't take away all of their cumulative rights to defer something.
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Old 04-12-2013, 09:28 AM   #64
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I don't see tax deferral as a "right".
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Old 04-12-2013, 09:38 AM   #65
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Can't get too worked up over this since it is just a proposal subject to changes.

Just don't think it is right if for example a person is hugely successful and by age 40 or so has 3 million in IRA's. While they may still be able to save for retirement in taxable accounts, they will no longer be permitted contributions in any tax deferred vehicle for the next 20 to 30 plus years. Unless of course the market tanks as has often been the case., and they are allowed additional contributions.

That is conceivably a very long time not to be able to defer even one dollar. Some people will fall into that category. So I also see it as affecting the rights of the hugely successful people. Rights they have had in the past. Cap the yearly contribution amounts perhaps but don't take away all of their cumulative rights to defer something.
First and foremost, tax deferred accounts were meant to encourage retirement investment for folks who might not otherwise have a nest egg - see quote below.

But let me exaggerate only to illustrate the issue. The Fed Govt needs revenue coming in every year to meeting each years spending obligations. If everyone was allowed to defer as much as they wanted with no annual limits (already in place) and no maximum cap (proposed), the only FIT revenue the government would receive currently might be only on partial wage income, only that wage earners could not afford to defer. Why would you hold anything in taxable accounts that you could defer? People might put most or all their investments in deferred accounts and forestall those taxes (on interest, dividends, CG, etc.) for 20-30 years or more. Who knows, the billionaires might have billions all tax deferred if it was perfectly legal. So arguably there has to be some limit on deferrals to fund current federal revenue needs. We may disagree about how the limits are fashioned, but hopefully we can agree it can't be unlimited. So we can agre ther need to be on some limits?

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Originally Posted by scrinch
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.
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Old 04-12-2013, 09:46 AM   #66
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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.

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.
But if they want to get more money today, then limit the amount people can put aside today... it is more 'fair' because it is imposed on everybody... also, the poor can not put $20K or more aside each year so it does not affect them... you are not creating any new calculations or forms or anything else... just changing what is already in place.... AND, you will bring in a lot more money than this proposal...
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Old 04-12-2013, 09:54 AM   #67
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No, that's the exact link and wording, and the part that people latch onto to project the opposite perspective is: "an accrual that would result in an accumulation in excess of the maximum permitted amount".

I agree with you, in that I doubt that this would go into effect having impact on existing balances at the time it goes into effect.

I think you are misinterpreting accrual.... the next sentence of the quote say that it does not affect earnings....

"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. "
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Old 04-12-2013, 09:55 AM   #68
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Can't get too worked up over this since it is just a proposal subject to changes.

Just don't think it is right if for example a person is hugely successful and by age 40 or so has 3 million in IRA's. While they may still be able to save for retirement in taxable accounts, they will no longer be permitted contributions in any tax deferred vehicle for the next 20 to 30 plus years. Unless of course the market tanks as has often been the case., and they are allowed additional contributions.

That is conceivably a very long time not to be able to defer even one dollar. Some people will fall into that category. So I also see it as affecting the rights of the hugely successful people. Rights they have had in the past. Cap the yearly contribution amounts perhaps but don't take away all of their cumulative rights to defer something.
In the big scheme of things, I just fail to see this as big issue (provided of course that it is limited to NEW contributions).

Think about it this way; if you have $3 million in IRA's and your investment return a conservative 5%, that's $150,000.

Contributions to a 401k for 2013 is limited to $17,500 and about $6,000 for an IRA.

The $17,500 and the $6,000 are peanuts in comparison to the $150,000. This is why I am not too concerned about the proposal. Of course, this assumes as bUU pointed out that it is just limited to NEW contributions.
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Old 04-12-2013, 10:00 AM   #69
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I think you are misinterpreting accrual.... the next sentence of the quote say that it does not affect earnings....

"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. "
Texas Proud,

I agree with what you wrote. But then the next sentence after that it says the following:

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
.

It is this last sentence that confuses me. I know what the word accrual means in regular bookeeping/accounting. But what do they mean by the word accrual within this context?
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Old 04-12-2013, 10:14 AM   #70
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But let me exaggerate to illustrate the issue. The Fed Govt needs revenue coming in every year to meeting each years spending obligations. If everyone was allowed to defer as much as they wanted with no annual limits (already in place) and no maximum cap (proposed), the only FIT revenue the government would receive currently might be only on partial wage income, only that wage earners could not afford to defer. Why would you hold anything in taxable accounts? People might put most or all their investments in deferred accounts and forestall those taxes (on interest, dividends, CG, etc.) for 20-30 years or more. Who knows, the billionaires might have billions all tax deferred if it was perfectly legal. So arguably there has to be some limit on deferrals to fund current federal revenue needs. We may disagree about how the limits are fashioned, but hopefully we can agree it can't be unlimited. So we can agre ther need to be on some limits?
And this is why I believe the Roth will never go away. Especially all those highly income people who think they are getting a grand deal from the government. The government gets paid today, and most likely at a higher rate, even in a lot of cases compared to someone putting it in a taxable account. Plus, the government then gets to come up with ideas how to "tax" those with Roth accounts later on down the road.

Onto the $3MM cap. Being "wet behind the ears" at age 30, I do worry this cap will not be indexed to inflation if implemented. Combine that with a generous 401k match in company stock that doubled, I find myself at age 30 with approximately $300k in IRA's, not including my wife's. Doing some quick calcs, there are scenarios within the realm of possibilities (10% annual avg returns over 25 years or 8% returns over 30 years-when I can more or less start tapping my IRA accounts) where I reach $3MM without ever making another contribution. Of course, I do continue to contribute to my IRA and 401k's (and will likely switch jobs every 2-5 years, meaning I will rollover). While the view of this board is generally of the Boomer generation, my "unicorn" voice is urging caution that the $3MM number is eerily "low" for those who are savers if not indexed to inflation.
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Old 04-12-2013, 11:29 AM   #71
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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.

It seems like a non-issue, at least to me.
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Old 04-12-2013, 11:38 AM   #72
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It does not affect me but while I have no objections to this in theory I feel $3 million cap is too low. I have lots of friends who are self-employed and they make less money than they could have at megacorp mainly because of the fact that they can put $50K away every year in their IRAs tax free. Some of them already have $3 million in their IRAs and this can impact them. It seems if the cap will be $3 million then it should be phased in to take into account the career choices people have made based on this tax law so they can adjust.
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Old 04-12-2013, 11:47 AM   #73
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I think you are misinterpreting accrual....
It's not me... I'm just reporting how others have interpreted.

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"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. "
Yup, I've pointed that out, but there's still a large percentage of posts (more than half, over the several discussions I've seen) talking about "confiscation" or some other prejudicial characterization of this portion of the proposal. I both agree with your interpretation and hope it is the reality.
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Old 04-12-2013, 11:57 AM   #74
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I don't see tax deferral as a "right".
I think you are splitting hairs with my wording. I do believe it a "individual right" to be able to save for retirement, tax deferral or not. No the government does not have to allow us anything but for decades or more they have.

So let's just call it something we could do before that may now be in jeopardy after a certain cap level. Notice I said, "after a certain cap level".

While others here may not see a problem with it, we obviously are not in the same shoes of those that may be affected by it now....or in the future.
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Old 04-12-2013, 12:00 PM   #75
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Texas Proud,

I agree with what you wrote. But then the next sentence after that it says the following:

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.

It is this last sentence that confuses me. I know what the word accrual means in regular bookeeping/accounting. But what do they mean by the word accrual within this context?

A company does not have to contribute cash to put something in your account... they can make an entry in their books and move treasury stock to your account... I can also see where they could 'accrue' a contribution to your account, but not fund the pension plan... we all know about the various state gvmts who have been doing this for a long time...

It think the word accrual is a word used to prevent somebody from putting more money in on a technicality... a boilerplate word... since the previous sentence said specifically an account could grow, why put in sneaky wording to prevent it
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Old 04-12-2013, 12:02 PM   #76
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But if they want to get more money today, then limit the amount people can put aside today... it is more 'fair' because it is imposed on everybody... also, the poor can not put $20K or more aside each year so it does not affect them... you are not creating any new calculations or forms or anything else... just changing what is already in place.... AND, you will bring in a lot more money than this proposal...
I agree something like this makes more sense and does not feel as much like government intrusion with an imposed lifetime cap.
Just limit the amount that can be deferred each year with all deferred options such as the 401K(already has caps), Simple and SEP IRA's, annuities...etc.

Consequences for the annuity industry? Don't know, but perhaps.
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Old 04-12-2013, 12:07 PM   #77
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It's not me... I'm just reporting how others have interpreted.

Yup, I've pointed that out, but there's still a large percentage of posts (more than half, over the several discussions I've seen) talking about "confiscation" or some other prejudicial characterization of this portion of the proposal. I both agree with your interpretation and hope it is the reality.

OK, fair enough...

I also think that the confiscation talk is a bit over the top... even if it were a hard cap and all amounts over $3 mill were taxed... well, that would be the law. You do not have to invest in a tax advantaged account if you do not want to... you have the choice of paying all your taxes today and not worry about reaching this amount and investing anywhere else you wish...

Now, if it were a hard cap.... (which I do not think it every would be), then I do think that anybody over the cap today should be grandfathered... IOW, it is not fair to change the rules on them after them following them all these years and force a possible big tax bill....
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Old 04-12-2013, 12:13 PM   #78
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It think the word accrual is a word used to prevent somebody from putting more money in on a technicality... a boilerplate word... since the previous sentence said specifically an account could grow, why put in sneaky wording to prevent it
That would make sense.

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Now, if it were a hard cap.... (which I do not think it every would be), then I do think that anybody over the cap today should be grandfathered... IOW, it is not fair to change the rules on them after them following them all these years and force a possible big tax bill....
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Old 04-12-2013, 01:00 PM   #79
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I think you are splitting hairs with my wording.
I think the distinction is really important. If it isn't a right, then it is something which society offers presumably because offering it is in society's best interest. If that turns out not to really be the case (if it costs society more than is represents value to society) then society shouldn't do it.

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I do believe it a "individual right" to be able to save for retirement, tax deferral or not.
I agree, and I haven't seen anyone really dispute that.

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No the government does not have to allow us anything but for decades or more they have. So let's just call it something we could do before that may now be in jeopardy after a certain cap level. Notice I said, "after a certain cap level".
Given that the objective of the tax deferral is to motivate people to save for retirement), it is important to note that those who may no longer be offered the incentive are among those least likely to be driven to save for retirement by the incentive the tax deferral offers.
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Old 04-12-2013, 02:44 PM   #80
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I think the distinction is really important. If it isn't a right, then it is something which society offers presumably because offering it is in society's best interest. If that turns out not to really be the case (if it costs society more than is represents value to society) then society shouldn't do it.

I agree, and I haven't seen anyone really dispute that.

Given that the objective of the tax deferral is to motivate people to save for retirement), it is important to note that those who may no longer be offered the incentive are among those least likely to be driven to save for retirement by the incentive the tax deferral offers.
bUU, your post #64 seem to indicate "tax deferral was not a right". While I feel it has sort of been a right granted us by our government to save for retirement for x number of decades.

Not sure I totally understand your statement that "those who may no longer be offered the incentive.....are among those least likely to be driven to save for retirement by the incentive" . Meaning, I would think if they are no longer offered the incentive it is because they did save and have reached the cap amount.
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