Proposed IRA Change Is Punishment, Not Progress

I’m not sure how many times we’ve run through the rhetoric when it comes to retirement planning: plow as much money as allowable into your 401k and IRA plans, and keep an eye on those investments. Hey, it’s great advice every time we talk about it.

But there’s a new monkey wrench thrown into the works: President Obama’s 2014 budget submission to Congress is expected to include a plan prohibiting individuals from taking tax benefits on these retirement accounts once their value(s) reach $3 million, potentially saving the government $9 billion in lost revenue over the next 10 years.

What a terrible idea.

Pick up a paper, look online, read a report, do some digging on the topic of retirement, and you’ll see one common theme: Americans are not saving up enough for a “comfortable” retirement. Obama’s proposal is 180 degrees from what we’ve been talking about — save, invest, and manage your retirement. It’s quite simply the wrong message.

Now, let’s be clear on two points:

  • Very few people are affected: According to analysis from the Employee Benefit Research Institute, only about 0.1% of IRA and 401k savers would be impacted today. In fact, only around 6,000 of the 20 million-plus IRA accounts in the EBRI database in 2011 had accounts exceeding $3 million, with only a fractional increase in the number for 2012.
  • The devil is in the details: It’s unclear how the $3 million figure would be calculated and taxed. Would taxes kick in on marginal dollars over the threshold? And what might happen if the value of the accounts fluctuated due to market conditions? Also, what about changes in inflation?

You get the picture: This is not going to be easy. And it shouldn’t be!

If Obama is trying to play the populist game of gotcha on the Mitt Romneys of the world — he managed to accumulate some $200 million in retirement accounts — that’s all well and good. But for the rest of us, saving, investing and accumulating money in tax-advantaged accounts is a big part of our ticket to that comfortable retirement.

Limitations to the amount of money that can be accumulated, either by direct investment or through appreciation in assets contained in the account, shouldn’t be part of any budget proposal — period.

So let’s see how this one plays out before we get our undies in a bunch. And in the meantime, keep saving, keep investing, keep working toward those retirement goals.

Marc Bastow is an Assistant Editor at

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