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Old 04-21-2013, 02:14 PM   #141
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Originally Posted by meierlde View Post
Note that in addition to the supplemental plan at my megacorp (retired) you could contribute after tax dollars as well (before roth 401ks were allowed). Again due to lack of details would roths be affected. If roths were still allowed (meaning the deferral of taxes on gains) then you would just switch the place the funds went. I do expect the roths to eventually get RMD's so that they can not become perpetuities as they are now, perhaps on anyone that inherits one.
My employer offered supplemental, non-qualified plans, too.

The intent of this proposal seems to be to wrap all types of qualified retirement savings into one bundle, and then put a cap on that bundle. I'd be surprised if Roth's weren't included in that bundle - i.e. you can't put additional funds into your Roth after you've hit the cap.

The language is very brief: "(i.e., IRAs, section 401(a) plans, section 403(b) plans, and funded section 457(b) arrangements ...)".
A Roth IRA is an IRA. I've been told that 401(a) is the umbrella language at the beginning of section 401 which covers everything else, including 401k and Roth 401k.

Under current law, a non-spouse who inherits a Roth has two distributions options - within 5 years or lifetime using the life expectancy factors. This proposal would eliminate the life expectancy factors option. (p. 163)
http://www.treasury.gov/resource-cen...ons-FY2014.pdf
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Old 04-21-2013, 06:49 PM   #142
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Sorry for the slow response, I had some technical problems.

Yes, this proposal is indexed for inflation. The cap is tied to the maximum DB plan benefit, which is currently $205k. That number has been indexed since EGTRRA was passed in 2001. There is nothing in the proposal about un-indexing it.
Well yes and no the DB benefit is indexed to inflation.
However the cap is based on an $205,000 payment. That payment not adjusted for inflation.

Quote:
A taxpayer who has accumulated amounts within the tax-favored retirement system (i.e., IRAs,section 401(a) plans, section 403(b) plans, and funded section 457(b) arrangements maintainedby governmental entities) in excess of the amount necessary to provide the maximum annuity permitted for a
tax qualified defined benefit plan under current law (currently an annual benefitof $205,000 payable in the form of a joint and 100% survivor benefit commencing at age 62 and continuing each year for the life of the participant and, if later, the life of the participantísspouse) would be prohibited from making additional contributions or receiving additionalaccruals under any of those arrangements. Currently,the maximum permitted accumulation for
an individual age 62 is approximately $3.4 million.

I should point out that best quote I could find for 205K annuity with a joint survivor option was 3.85 million. For a company I trust like Berkshire Hathaway the amount was over 4 million, and if I had a wife who was say ten year younger you actually need 4.5 million to get 205K. The 3.4 million only gets you $154,000 not a bad income but hardly rich especially if we have a period of high inflation when you retire on your fixed SPIA.

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I don't understand "no need for me to contribute any more because of the cap". Do you mean "contribute more to my 401k plan"? or "contribute more to my retirement savings"?

There's nothing in the proposal that should change anybody's attitude toward saving for retirement. The only impact would be where they saved.

Suppose I'm a great, 40 year old investor who found that I had $400k in my 401k in 2000. Looking ahead, I can imagine that I will eventually hit the $3.4 million cap on qualified accounts. Further, I can imagine that after I hit that cap, I won't be getting my employer match on my 401k*.

Note that I'm only 12% of the way to the cap, I still have to build up the other 88%. Still, I am so concerned that I may eventually lose some future match, that I decide to put some of this year's retirement saving into an after-tax asset.
Well I think we will just agree to disagree on this. Even for a good saver LYBM person like myself, maxing out my 401K was by far the easiest way of saving. I never saw the money it just disappeared into my 401K balance and (almost) every quarter I see the numbers get bigger and plus I knew for every $1 I put in my 401K I saved $.40 on my taxes which lessened the pain of saving. Psychologically it is much easier to save that way than it is to write a check to Vanguard,Schwab, Fidelity, with after tax money to invest in a index fund.

There are host of problems with this proposal including that it doesn't actually raise much money just collects the taxes sooner. But the biggest one is sends exactly the wrong message, if you save too much for retirement you could get hosed.

If they want to fix "problem" of saving too much for retirement, then the other proposal. Requiring non-spousal beneficiary to withdrawal all of their IRA money over 5 year instead of the lifetime. Solves 90% of the problem with lot less paperwork and hassle.
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Old 04-22-2013, 03:52 AM   #143
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That payment not adjusted for inflation.
If that's true (it's impossible to tell because the bill hasn't been written yet) then let's fix that.

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Originally Posted by clifp View Post
I should point out that best quote I could find for 205K annuity with a joint survivor option was 3.85 million.
The proposal doesn't say anything about joint survivor option. Regardless, if the numbers are off a little, then let's fix that.

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not a bad income but hardly rich
I think it is important to remember that tax deferral is granted by society because it supports a public interest, and "not a bad income" is actually beyond what is needed to serve the public interest; it actually includes some gravy, in that regard.

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But the biggest one is sends exactly the wrong message, if you save too much for retirement you could get hosed.
The proposal doesn't send that message; the detractors do that.
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Old 04-22-2013, 03:38 PM   #144
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Well yes and no the DB benefit is indexed to inflation.
However the cap is based on an $205,000 payment. That payment not adjusted for inflation.
I think you're saying that the maximum DB benefit will continue to be indexed to inflation, but the cap on DC accumulations won't. I don't see how that's possible. Read the next paragraph.

The math goes like this:
1) I add up all my DC balances,
2) multiply the total by an annuity factor provided by the IRS (apparently about 6% for a 62 year-old),
3) add all my DB benefits to the number I got in step 2
4) compare to this year's DB maximum benefit.

If step 4 says I'm over the max, I can't contribute this year to my DC qualified accounts, and I can't accrue additional DB benefits. Since the DB benefit max is indexed, the cap on DC accumulations is also indexed.

If you go down two paragraphs you'll find:
Quote:
... when the maximum defined benefit level increases as a result of the cost-of-living adjustment, the maximum permitted accumulation will automatically increase as well.
That's the natural result of the math above.

Quote:
Well I think we will just agree to disagree on this. Even for a good saver LYBM person like myself, maxing out my 401K was by far the easiest way of saving. I never saw the money it just disappeared into my 401K balance and (almost) every quarter I see the numbers get bigger and plus I knew for every $1 I put in my 401K I saved $.40 on my taxes which lessened the pain of saving. Psychologically it is much easier to save that way than it is to write a check to Vanguard,Schwab, Fidelity, with after tax money to invest in a index fund.
Yes, I guess we'll continue to disagree. The proposal is probably DOA (it's a tax increase), so we'll never have actual experience to see.
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Old 04-22-2013, 04:56 PM   #145
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I think you're saying that the maximum DB benefit will continue to be indexed to inflation, but the cap on DC accumulations won't. I don't see how that's possible. Read the next paragraph.
No I am saying that annuity you get when you retired is a fixed amount $205,000 this year. I quoted how the cap is calculate an annuity with 100% joint survivor benefit but no inflation increase. While retiring on $205,000 is certainly a decent amount of money it isn't huge amount in 20 years if inflation kicks in.

Let's put this way all of those public employees with 100-150K pension that they can collect at say 55 with COLA have a better retirement than provided by the cap.

As we all agree this unlikely to become law so I am done.
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Old 04-23-2013, 09:45 AM   #146
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No I am saying that annuity you get when you retired is a fixed amount $205,000 this year. I quoted how the cap is calculate an annuity with 100% joint survivor benefit but no inflation increase. While retiring on $205,000 is certainly a decent amount of money it isn't huge amount in 20 years if inflation kicks in.

Let's put this way all of those public employees with 100-150K pension that they can collect at say 55 with COLA have a better retirement than provided by the cap.

As we all agree this unlikely to become law so I am done.
Okay, you're saying the $205k is a fixed dollar benefit after retirement. So your complaint is that $205k isn't really very much money.

I'll agree that most people here figure that a safe spending plan for a $3.4 million fund starts at about $135K, and increases with inflation. So that's a more realistic view of the maximum tax-advantaged benefit.

That's about 3x the current median income for full-time, year-round workers. I suppose we could debate the public policy reasons for having tax-advantaged savings programs of any sort. You and I might be on opposite sides of that debate, but I'm afraid it would get us outside the boundaries of this forum.
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