Retirement account caps

[Act2]

I've been reading about the proposed federal cap on how much a person can have in all of their tax-favored retirement plans so they don't get too much in retirement. Since there are already limits on what can contributed, and since all the tax deferred money is eventually taxed when distributed, what's the point? It seems contrary to all the talk about how everyone needs to save more for retirement.

 

[braumeister]

Don't expect this to be passed.

 

[GalaxyBoy]

Where have you been reading this? Link, please.

 

[Alan]

Where have you been reading this? Link, please.

Right here on this site
http://www.early-retirement.org/for...roposal-affect-retirement-accounts-66030.html

http://www.early-retirement.org/forums/f28/obama-s-budget-would-cap-retirement-accounts-66039.html

 

[veremchuka]

I suppose there are many reasons. One would be control, this govt is all about control over the past few administrations but wickly so with the current. Another would be that tax favored are tax deferred or tax free and the govt wants that money in a taxable vehicle. Why wait until everyone is 70 1/2 for RMDs when you can tax their money every year. Another may be just to punish the "wealthy" you know people like us here. I suppose there could be more but off the top of my head these come to mind.

 

[Midpack]

Right here on this site
http://www.early-retirement.org/for...roposal-affect-retirement-accounts-66030.html

http://www.early-retirement.org/forums/f28/obama-s-budget-would-cap-retirement-accounts-66039.html

+1. I knew we'd already been through this discussion once (including the current revenue vs deferred revenue issue), but nothing wrong with having another. Something will have to give with entitlements sooner or later, we can't be 'up in arms' every time there's ANY proposed change.

 

[Act2]

Similar to last year's proposal (that Alan linked above). It's been re-introduced this year:

http://www.theslottreport.com/2014/03/president-obamas-2015-budget-includes.html?m=1

 

[Theduckguru]

Unless I read the proposal incorrectly, the cap would be 3.2 million. A spouse could have another 3.2 million. That's unreasonable?

 

[Greencheese]

This sounds exactly like the AMT when they were introducing it. There were a handful of people who got lucky/exploited some loopholes to take advantage of tax shelters and the government came out to "get" them. Given the retirement crises that's about to hit this nation I'm not sure I would expect to see this ever happening if nothing but for the simple fact its way to complicated to keep track of. I.E. multiple accounts, employers, massive market fluctuations, etc...

I'm personally more worried about a cap in the amount of tax deductive contributions per year rather than the total amount that can be placed contributed via a $3.2 million dollar limit. But given how efficient and focused our government is... nothing would surprise me...

 

[bUU]

I doubt we'd ever be subject to the cap, but even if we were I think it would be a fair change to implement to address the retirement crisis. It is something that will definitely be a really big problem that will have to be addressed, somehow, and capping retirement contributions like this is just about the least harm-causing way I can think of.

 

[Midpack]

Unless I read the proposal incorrectly, the cap would be 3.2 million. A spouse could have another 3.2 million. That's unreasonable?

Just a proposal with NO cap on how much one can put aside, only on how much can be in sheltered accounts. It won't pass anytime soon if ever, but what's a better option?

 

[veremchuka]

Unless I read the proposal incorrectly, the cap would be 3.2 million. A spouse could have another 3.2 million. That's unreasonable?

Uh well that is a high value but I'd counter WHY should there be any cap whether $3.2 M or $3.2B? The govt needs to stay out of your business period. What's next they'll tell you the kind of car you can drive? Or how about how many oz your big gulp soda can be. Oh right that ones been played huh!

 

[ERhoosier]

Right here on this site
http://www.early-retirement.org/for...roposal-affect-retirement-accounts-66030.html

A thread mercifully ended by Porky

 

[HFWR]

The cap would have too be much lower to affect me...

I think a cap on tax-deferred accounts is a reasonable idea.

 

[Fermion]

The problem is some certain people can shift A LOT of money into retirement accounts...tens of millions.

Then there are all of those goofy rules about stepped up basis inheriting a IRA...makes no sense.

 

[bUU]

Uh well that is a high value but I'd counter WHY should there be any cap whether $3.2 M or $3.2B? The govt needs to stay out of your business period.

How much income that you've derived from society's economy which you shelter from taxation by society is society's business.

 

[keegs]

There's already HCE restrictions on the worker bees...have no problem with the Romney rule.

 

[Accidental Retiree]

Then there are all of those goofy rules about stepped up basis inheriting a IRA...makes no sense.

I don't understand this. Could you explain?

Money withdrawn from an IRA is taxed at ordinary rates, so we can't take advantage of the capital gains exclusions rules.

I haven't inherited an IRA but can't see how one of those would be any different.

What might I be missing?

 

[Midpack]

How much income that you've derived from society's economy which you shelter from taxation by society is society's business.

+1.

 

[Fermion]

I don't understand this. Could you explain?

Money withdrawn from an IRA is taxed at ordinary rates, so we can't take advantage of the capital gains exclusions rules.

I haven't inherited an IRA but can't see how one of those would be any different.

What might I be missing?

Oh I was wrong sorry. I thought IRA gets a step up in basis but it doesn't. Other assets do. I will never inherit a dime so haven't dug deep into that information.

 

[Hamlet]

This seems like an overly complicated way of addressing what is really a very specific problem.

We need to stop letting private equity folks put 10s of millions of dollars worth of private stock into IRAs by claiming it is worth almost nothing.

Enforcing account size limits because someone happened to luck out and buy Netflix in their IRA seems like a whole lot of red tape for almost no revenue gain.

 

[Bestwifeever]

IRAs and tax-deferred retirement vehicles are relatively new (anything that I can remember starting in my lifetime falls in the relatively new column). Here is a 2011 history: Deduct This: History of the IRA Deduction - Forbes

If we had to completely lose the tax break (which I think is really not a break for the traditional IRA, just a postponing of paying taxes on the earnings and for many of us the contributions we made to these accounts), we would probably still be saving for retirement. We would just be "prepaying" the taxes like we do on other savings. The idea of capping retirement accounts doesn't bother me (there have been many refinements of these accounts since the first ones were available in 1975, yet we seem to have all survived them), although I don't see a lot of reports that this is actually on the verge of happening. If it does, it will also go into the relatively new column for me, and then something else will be changed....

If government kept its hands off our money, IRAs would not have been created.

 

[veremchuka]

How much income that you've derived from society's economy which you shelter from taxation by society is society's business.

WOW!

No it is NOT. It is my money not society's money, I earned it not society. That's a socialist concept, not a capitalist concept. My money is mine not yours or the "village's" or the govt's at least until taxes are due. If I want to put millions into tax advantaged account that's my business and no one should be able to limit it.

 

[growing_older]

I disagree. You can do what you want with your money, but when society decides to subsidize some activity (example contributing to a retirement account) with a tax break, then it is also reasonable to put some kind of limit on how much of that is willing to be subsidized. Are you saying it is nobody's business how much you put in your IRA, so you should be able to contribute above the current $5500 limit?

I think the abusive valuation that allows private equity folks to contribute restricted stock at supposedly near zero and then end up with millions in a tax free account should be prohibited. Likewise I think it's reasonable to decide that the favorable tax treatment to encourage low income workers to contribute to their savings will phase out at some income level. Putting a cap on retirement savings above which future contributions are not given tax breaks is logically the same as many other phase outs in the tax code. You may agree or disagree with the laws, but there's nothing fundamentally different about this limit.

None of these plans are saying you cannot have more than X saved. Only that if you have more than X saved then you no longer qualify for tax deductible treatment on further contributions.

 

[bUU]

WOW!

No it is NOT.

WOW! Yes it is. Get over it. You earned income from society's economy.

None of these plans are saying you cannot have more than X saved. Only that if you have more than X saved then you no longer qualify for tax deductible treatment on further contributions.

Precisely. In this case, the tax advantage would be acknowledged for what it is, an incentive to save, something which people over a certain amount of assets have determined they're going to do anyway. Disney sends PIN codes out now to secure access to special discounts at their theme parks, leveraging what they know about the prospective customer to gauge how likely they would be to visit without a discount and thereby limiting the discounts as well as possible to those who would not visit without the discount. America has the same right (and really: responsibility) to target the incentives built into the US code so as to benefit American citizens as Disney has built into their pricing model to benefit their shareholders, even though some of those shareholders may be rich vacation-goers.