So the President is proposing a CAP on IRA accounts not to exceed 3 million. I know that is a lot

[still_one]

of money, but what that means is if someone buys equity in an IRA account, and over many years its value exceeds 3 million they would be taxed on the amount exceeding that even if it hadn't been withdrawn from the account.

That does not seem fair. and no, I am NOT in that category.

It is interesting that if one has losses in an IRA account the only way to claim those loses is to withdraw the amount from the IRA account, and then you can claim losses after a deductible of 5% of your AGI.

So effectively what is being proposed is a limit on the amount you can save for retirement. At the same time they are proposing cutting social security benefits by eliminating COLA adjustments.

Increasing tax rates is one thing, but trying to encourage people to limit their retirement earnings I believe is not right. When the money is eventually withdrawn, the taxes will get paid then.

With the costs of education, healthcare, housing, and other things, to try to limit what people can save for retirement is wrong.

If a person has a kid who gets into Harvard or Columbia, it could cost them 200K for a degree including board and room.

In California, if a kid goes to a UC that amount would be anywhere from 50 - 100K including board and room.

Looking at the ACA exchange program for California, a family of 2 making 63K would pay about 1000 dollars a month for healthcare.

How about raising the CAP for SS? How about increasing taxes for amounts over 250K? The middle class has really felt the burden of the folly from deregulation and other government games. That there are Democrats in Congress talking about raising the age for full Social Security benefits is a disgrace.

[Xipe Totec]

1. Is that limit per account, or per individual. nt

[Laelth]

2. Not fair?

One could argue that it is unfair for anyone in this society to own $3 million when others of us are starving and homeless. Allowing the first $3 million to pass through without being taxed seems more than fair to me. I would not object to a 75% tax on all IRA assets over $3 million from a single, individual account.

-Laelth

[ProgressiveProfessor]

5. IRA funds are already taxed

either when invested or withdrawn

[still_one]

13. Absolutely correct.

[muriel_volestrangler]

3. It's a limit of the tax advantages given for saving for retirement

$3 million will buy a very comfortable annuity. Those who are even richer can still save for retirement; they just won't get the special tax breaks. They'll be in the same position as someone saving for, say, a new car, or a vacation. A retirement with more than $3 million to back your personal income is more of a luxury than most cars or vacations.

[customerserviceguy]

7. I remember that sort of logic

when the idea of taxing unemployment compensation benefits was first put into law.

Surely, that $25K per married couple and that $20K per single person back in 1978 seemed like a lot of money to me, when I was making $1,000 a month (and had nearly doubled my wages in two years) and trying to support my family with our first child born that year. But, once we've gotten to the principle that a particular benefit can be limited, without restriction, and without reference to inflation (even a chained CPI is better than nothing in this case), then we can watch how law changes and inflation can erode the lofty limits that were the camel's nose under the tent.

As time goes on, watch that limit drop to two, then one million. And the annuity those sums could buy will drop as inflation eventually takes hold. Those who bought their annuities when interest rates were low will see purchasing power drop like a rock.

The thing is, those who can manage to put away three million dollars all know that. They'll find other ways to shield from taxes, including risky ones. Nobody's going to limit your ability to own a four million dollar building to rent out, so we will see some drift towards the hazards of being a landlord.

You also lay out the possibility of people finding clever ways to hide money, that will never get taxed, or ever be a part of capital formation that ultimately spurs on economic recovery. We don't need to go down this road.

[muriel_volestrangler]

10. Is it "without reference to inflation"?

Arguing that "it will be dropped to 2 then 1 million" is bogus. That's like saying that raising taxes on those earning above $250,000 will change to those above $150,000 and then $90,000. It would be an argument for never raising taxes on anyone, in any way, ever, because that would be "the camel's nose under the tent". And arguing that they'd find a way to avoid the tax, and so you should not change the rules, is similar to arguing that there's no point in ever closing any tax loopholes, because people will find other ones.

If people want to become a landlord, then let them. They just don't get the special tax breaks given to an IRA.

[customerserviceguy]

11. All I can tell you is

Those $25K and $20K thresholds for "rich" people were dropped a few years later (during a recession, to boot, thanks Bob Dole!) to $18K and $12K, and as you know, all UC is taxed right now. Once you establish the principle that a tax deferred account is not completely that way, then you've invited law changes that will whittle it away to nothing. If we don't fix Social Security soon, we will see that eventually a "fix" is that it's considered a double-dip to have both tax deferred savings AND Social Security, and people will be asked to choose which of them to give up.

And if you don't think that real estate gets tax breaks, I have some news for you. However, it's still as risky as hell, I talk to miserable landlords every day.

Somebody downthread had a good idea, make sure that investments in cash (savings accounts, of course) or publically traded securities (I would add mutual funds that own such securities to that) be the only thing allowed in tax deferred accounts. Those investments contribute to capital formation and investment in people that we really need in a growing economy that has enough FICA taxes flowing into it to deal with the challenges ahead.

[still_one]

12. I agree with your assessment. On one hand you encourage people to save, then say that you

Want to limit those savings so if they are above a certain amount it will be taxed even before you withdraw it.

[muriel_volestrangler]

14. That's progressive taxation

which is a Good Thing.

[customerserviceguy]

15. There was a policy reason for expanding IRA's back in the 1970's

And that was so the baby boomers could start saving for their own retirements rather than depend 100% on Social Security. Changes made now to expectations have far-reaching consequences. Right now, the youngest workers have very little faith the Social Security will be there for them, starting to limit the amounts they can save away for themselves makes their despair more acute.

[muriel_volestrangler]

16. The most Social Security pays per year is about $30,000; $3 million buys an annuity of $200,000

It's ridiculous to say that limiting the tax break is going to affect people who are worried about how much Social Security will pay them.

Who are these people who despair (acutely!) that $200,000 a year just won't be enough, when they've paid off their mortgage(s)?

[still_one]

17. You pay taxes on IRA money when it is withdrawn. If you are referring to Roth Iras, you cannot even

contribute to a roth if you make too much money, so this vehicle actually is directed toward the middle class.

Sending your kids to college, medical expenses, housing energy cost this is a regressive policy.

Incidently you say social security pays about 30K a year. Actually, for most people it is considerably less than 30K a year.

This isn't a question that an annuity of 200K is not a lot of money, this is a question of those that have saved over many many years, and accumulated that, should now be penalized for that savings, by adding a tax on the money before it is taken out of that savings account.

And as I said before it does not pertain to my personal situation. Also, in certain states, costs for housing and fuel are pretty high, not representative of the wages people make.

[muriel_volestrangler]

18. People who can accumulate more than $3m in a retirement plan are not middle class

Given the contribution limits (now $5,500 a year) that apply to most people, it's next to impossible to build up that much. The people who may have done so are dodgy businessmen like Mitt Romney, who built up nearly $100m in his, probably by fraudulently valuing shares that he put in it; or non-standard ones like a SEP IRA into which they put much more than $5,000 a year.

"Costs for housing and fuel" aren't relevant; anyone who has accumulated over $3m in a savings account will have paid off their mortgages. No-one who is remotely near 'middle class' has fuel bills that form a significant part of $200,000 a year. It is a question that 200K is a lot of money. That's why this is progressive; those who haven't accumulated $3m aren't affected by this, whilke those millionaires who have are.

On edit: Here's the explanation of how this will work - the total income you'd get at age 62 is evaluated each year. If it's below $205,000 (a limit which already exists for company defined-benefit pensions, and which gets a cost-of-living increase each year), then you can make tax-free contributions to the plan in the next year. If the amount in the plan would buy more than that (this year, that would take $3.4m), then you can't make a tax-free contribution in the following year. If the investments drop below the upgraded limit the next year, then you'll be able to.

http://www.treasury.gov/resource-center/tax-policy/Documents/General-Explanations-FY2014.pdf p.164-167

[still_one]

21. It takes 40 years to accumulate that at 10%. It is doable. This won't pass anyway, but it punishes

success

They tax social security if you make to much, and they also tax unemployment. In my view increasing tax rates is fine, but changing rules on IRAs is not the cause of the deficit. Perhaps, spending money on unecessary wars, favoring corporations to ship jobs overseas, and other nonesense would be a first good step, but not this.

In California houses cost a lot of money. Even condos can start at about 500K, and these are not in exclusive neighborhoods. In New York City it is even worse. Rent in new you for a 600ft apartment is 2000/month. As far as your assessment people with 3 million will have paid off that mortgage, not necessarily so.

Depends on Medical expenses, college costs, and yes, housing where people had to take money out of their house to finance their kids college education

Unknown medical expenses are astronomical. Such as cancer treatments, and heart surgery? Any one of those things can wipe that 3 million dollars out in a very short time.

The ACA is NOT universal healthcare, and will NOT solve that problem. In fact for 2 people making 65K a year in California, they would have to pay a maximum under the exchange program of 12500K a year. That is a thousand a month, and rent/mortgage, food, energy, it is no panacea

If they had true universal healthcare, reasonable housing costs this would not be an issue, but this is not going to happen.

The reason romney was able to do this, is because of wonderful congress giving him those type of offshore nonsense tax breaks.

Just require the money to fund IRAs must be in cash not special deals and that problem is solved, but that won't happen either

[muriel_volestrangler]

22. Close to 11%, and that's *above inflation*

If you think you're going to average a return of more than 11% above inflation, you're being too optimistic. But, if you are that lucky, then you'll just stop contributing. Congratulations. If you get a return of close to 11% above inflation for 40 years, you trulty are a lucky duck, and you don't need extra tax breaks.

"In California houses cost a lot of money.". Great. Then people should direct their income towards buying one, rather than pumping money into a retirement plan than gives the a retirement income of $205,000.

It's irrelevant what people earning $65k a year can do. This is about people who have so much money that their retirement income will be more than 3 times that. Can't you see that? This is about the 1%. You are desperately fighting for the 1% to get tax breaks. You are saying exactly what the Republicans say. You don't want taxes to go up on anyone, ever.

[FreeJoe]

24. $5,500 limit? You're missing some options

Theoretically, I can put $5,500 into an IRA this year plus roughly $50,000 into a 401K. Assuming that my company goes away, I would role that 401K money into an IRA.

[FreeJoe]

25. You can contribute to a Roth regardless of income

As of 2010, there is a backdoor method that is very commonly used by high earners. You first put money into a non-deductible IRA, for which there is no income limit. Then you convert that IRA to a Roth IRA. There is no income limit on the conversion. The result is a little more paperwork, but now you can contribute to a Roth IRA regardless of you income.

I take advantage of Roth IRAs and Roth 401Ks, but I think they are terrible policy because they amount to the current congress promising a tax break to be paid by a future congress.

[HiPointDem]

33. the reason was to help kill defined benefit pensions & SS & replace them with crappy alternatives.

a strategy laid out in a cato paper.

[dawg]

4. The best solution would be limiting IRA investments to cash or publicly traded stocks and bonds.

I did a quick calculation. Forty years of contributing $5000 per year will get you to $3,000,000 at between a 10 and 11% average annual return. That is doable, and IMHO should not be punished.

On the other hand, if my IRA invests in shares of my personal holding company, based on the valuation my accountants provide, then there is the potential for horrible abuses like those perpetrated by Mitt Romney.

It isn't about the value in the IRA. It's how that value got there - fairly, or through shady accounting?

[HiPointDem]

34. "at between a 10 and 11% average annual return." = lol.

[treestar]

6. How can it not be fair if someone has that kind of money?

They have nothing to worry about.

[L0oniX]

8. It used to be that rich people felt an obligation to give back to the society that helped make them

rich. The key word is "felt". So let's put the measurement of the "what rich is" goal post on wheels so the rich can move it should they ever be accused of not feeling like they should give back something to society. So let's keep debating what rich really is ....cause that's working out so well for all of us. For those who don't know ...some of us can only wish we had money for an IRA ...instead we are hoping we won't be out on the street when we are 80.

[Ruby the Liberal]

9. They can still save as much as they want for retirement

They just can't take a CURRENT tax deduction on the funds.

Think about Roths in the situation you noted. Contributions aren't deductible, and gains aren't taxed.

[One_Life_To_Give]

19. We already Cap rate of Investment, now we admit to being full of excrement

We set-up a investment system of Limited Deposits to help/encourage people to put a little away for retirement.
And now we are going to state that although someone played by the rules and invested no more than what Congress limited them to. That congress now is going to Tax what they said they would not. So basically congress is admitting that they have been full of crap and lying thru their teeth all these years?

The net effect may be it creates a 401K system that is unmanageable. Either every little investor is going to get whacked with the expenses of trying to regulate to 0.06%. Or they will all be closed out as unworkable. Either way the middle class is being asked to do a Kevin Bacon impersonation

[muriel_volestrangler]

20. Pleas read the link in #19, and explain why a retirement income of more than $205k needs a tax break

This is not about "putting a little away for retirement". It's about putting more than $3.4m away for retirement. It is not about "little investors". When the value of the IRA grows to that large amount, they'll be told they don't get a tax break for the next year's contribution.

[One_Life_To_Give]

26. We all will pay for the accountants to manage this little change

So the sum total of the $2000 / yr in a IRA during years when you were not covered by an employers eligible plan. Combined with the now $17,500 ($23000 if over 50) per year of an eligible 401K/403B. Manages to earn combined a total of $205,000 in one year. Depending upon how it's invested and the particular year that could be in excess of $5million or less then $1million. (Fidelity Magellen has had years when $500k would put one over.)

The worst part is going to be the administration and how much of that cost is born by all the people who have 401k/403B's. Sorting out which monies are pre or post tax is going to cost more in management fees for all of us, than the tax revenue generated.

[muriel_volestrangler]

27. I'm sorry, but you make no sense

I just can't decipher what you're trying to say. Your first two sentences don't have a verb, for instance. Your third has no subject. However, the $205,000 is not a measure of what is 'earned'; it's the income from an annuity that could be bought with the total of the accumulated value of the IRA - which, currently, would need to be $3.4 million. "Fidelity Magellen has had years when $500k would put one over" makes no sense at all. $500k of what? 'Over' what?

[One_Life_To_Give]

30. Two Parts

1) Contributions have always been limited. You couldn't put 100k into a 401K in one year. That is a restriction placed upon IRA/401K/403B so that the rich can't use it as a tax dodge.

2) Who/How will someone determine if my accounts have exceeded the threshold or not? Outside of possibly the IRS who has records of any and all accounts that might have been opened?

3) Assuming an aggressive investor with 90% of 401K assets in International Development funds when do we determine the value? Does it matter that on Dec 31 they have $3.5mil and on following 4/15 $2mil? What if reversed?

4) Since one would have to calculate a value of total assets in plan(s) for each participant to ensure eligibility of the tax deferred contributions. Who is paying for the army of accountants?

[muriel_volestrangler]

31. It can be checked in the same way that they check you're not exceeding the yearly limits

From what the link says, if your total value is above $3.4m on Dec 31, you can't contribute in the next year.

The 'army of accountants' should be the firm that runs the plan(s) already. Someone with close to $3.4m in them would want a year valuation anyway, wouldn't they? It would be a pretty cavalier attitude to say "I don't know how much I've accumulated - could be $2m, $3m, $4m - I don't care".

[FreeJoe]

23. Indexed?

If it is index, I'm fine with it. That works out to $6,000,000 for a couple. That's a pretty nice little nest egg. And they aren't saying you can't save more. They are just saying that you can't save more in a retirement account.

If it isn't indexed, then it is terrible. Sooner or later, depending on the inflation rate, this will gut the usefulness of IRAs in general. I don' think that is a good idea. Maybe they could make a rule that goes something like you can't have more money in an IRA than is necessary to buy a 40 year annunity that pays out more than 4 times the median income when the annuity rate is based on the 10 year treasury rate. This way it stays yoked to median income but the amount flexes up and down based on reasonable expected return rates.

[muriel_volestrangler]

28. Yes, it's indexed

It's actually the amount that would buy an annuity equal to the limit of a defined benefit pension, which is currently $205k (and the amount would be $3.4m this year), and that is indexed.

[Egalitarian Thug]

29. A bad solution to a problem purposely created to legalize outright theft of worker's

wages and benefits. A robbery now into its 5th consecutive administration.

[HiPointDem]

32. romney had iras with millions in them. is he saving for retirement?

you're condemning a measure that for once would actually hit *capital* and saying it should be replaced with a measure (uncapping ss) that would hit labor.

What's Really Going on With Mitt Romney's $102 Million IRA

Tax experts and private-equity executives say the question is not how he got the money there, but why he wanted to do so in the first place. How can an individual retirement account that was limited by law to annual contributions of at most $30,000 grow into a fund with more than $100 million in it?

If we stipulate that when he was at Bain from 1984 to 1999, Romney put the maximum $30,000 a year into his so-called SEP-IRA, then as a baseline his IRA should have had a value of $450,000 by the time he left to run the Salt Lake City Olympic Games. If he was a talented investor and his IRA grew tenfold -- something not many people can achieve -- his IRA would be have been worth $4.5 million, a far cry indeed from the upper range of $102 million he says it is worth...

The private equity partners I spoke with laid out what they see as the most probable scenario explaining the growth of his IRA: When it came time for Romney to invest his portion of the $1 million needed (in our hypothetical example) for a Bain leveraged-buyout, instead of using money in his bank account, he used the money -- the $30,000 -- he had put in his IRA. Where once he had $30,000 in cash in his IRA, now he would have had something he valued at $30,000 but that was really his portion of the "carried interest" in the deal; if the deal worked out, the IRA could quickly be worth a lot more than $30,000.

"If you were 70 years old, it would be crazy to be doing it that way, because you're going in the wrong direction," he says. "You're converting capital gains into ordinary income. If you did it when you were in your forties and when you got to age 50 or 55 and you left the private-equity firm, you then had 10 more years of allowing the pile that you'd created to grow even more, tax-deferred. The fact that you were paying no tax on it, even though at the very backend you're taking it out at ordinary-income rates, you've, in theory, over the years, compounded it so many times that it would make up for it." So far so good for him, he says.

But this is not an option available to 99.99 percent of Americans, because the number of people who have access to "carried interest" is tiny.

http://www.theatlantic.com/politics/archive/2012/09/whats-really-going-on-with-mitt-romneys-102-million-ira/261500/

IRAs are a tax dodge for the 1% & I applaud this attempt to crack down on it.