Obama's New Budget Leaves A Big Question About The $3 Million Retirement Cap Unanswered

Business Insider

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Everyone's talking about President Obama's new fiscal 2014 budget proposal and what it could mean for the country's wealthiest workers. 

Obama's plan calls for a $3 million cap on how much workers can contribute to tax-advantaged IRAs or 401(k) plans. Until now, the rich have been able to treat their retirement accounts like tax shelters, keeping large sums of money out of Uncle Sam's reach. Mitt Romney reportedly put away more than $100 million in his own IRA. 

With the new cap, that would all change.

The question is, how exactly would this be enforced?

According to a new report from the Employee Benefit Research Institute,   0.03 percent of the some 20.6 million IRAs that are currently open have already surpassed the $3 million threshold. 

And 0.0041 percent of employer-provided 401(k) accounts had $3 million or more in assets by year end 2012.

Does the new budget mean they'd have to transfer the difference into another retirement or savings vehicle? Or would they just have to pay taxes on them immediately, instead of after they reach retirement?

There's been no discussion as to whether Roth IRAs are included in the cap, either, though it seems unlikely. Roths differ from traditional IRAs in that people pay taxes on their contributions right away and can withdraw them tax-free later in life. 

As part of the Fiscal Cliff deal, lawmakers made even more workers eligible for Roth IRAs in hopes that it would spur new contributions and, consequently, more tax dollars for the government's coffers. A $3 million cap would only curb that cash flow.  

For now, we'll have to wait for more clarity on how the new retirement savings cap would be enforced.  



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