$3M Limit on IRAs in Obama’s Proposal
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Individual Retirement Accounts are a top retirement choice for individuals who want to enjoy tax-deferred savings. However, Obama’s new budget plan includes caps on IRA accounts. Retirement account holderswould no longer be able to maintain an IRA balance in excess of $3M.
Would Obama’s proposed IRA limit apply to each individual account? No. According toBloomberg, “the cap would apply to the total of all of an individual’s tax-favored retirement accounts.”
Providing tax savings for both retirement planning and to heirs upon inheritance, IRAs have become extremely popular. Most IRA accounts have maximum annual contribution limits of $5,500. Considering these limits, the $3M cap may seem like an insignificant threat. However, individuals who have taken advantage of 401(k) and similar plans, and then rolled these plans over into an IRA, are those who would be affected by the new IRA balance limit. This is a fraction of a percent of IRA account holders in America today.
The Obama Administration is proposing the limit on IRAs because it believes more than $3M is “more than enough to retire comfortably,” according to CNN Money reports. By making this change, within 10 years it is estimated the government will save over $9 billion.
The proposal may impose a variable limit, one that will be determined on an annual basis. This could impact millions more or less each year. The unpredictability would make long-term financial planning and retirement decisions difficult to make for those using IRAs and other tax-preferred retirement accounts, and it would make alternative retirement accounts and creative financial planning more attractive to taxpayers. Annual reviews with estate planning attorneys and financial planners will help individuals arrange funds strategically to ensure maximum tax deferrals are used and sufficient balances are available for retirement.
The budget proposal would take effect in 2014.
