Obama: ‘Prohibit’ Americans from Saving More Than $3M in Retirement Accounts
(CNSNews.com) - President Barack Obama’s proposed budget would simultaneously compel Americans to enroll in a tax-deferred retirement account and “prohibit” them from saving more than $3 million in such accounts.
That sum, Obama’s budget argues, is all that is “needed to fund reasonable levels of retirement saving.”
Under current law, American who save money in tax-deferred retirement accounts are taxed on the money in such accounts when they withdraw it--and are charged an additional tax penalty if they withdraw it before retirement age.
Obama’s plan to simultaneously compel enrollment in a retirement account and prohibit Americans from saving more than what he believes is a “reasonable” amount in such an account is published in part of his budget that deals with what the president calls “rebalancing the tax code.”
Although the budget would “automatically” enroll Americans in a retirement account—even if they did not want to enroll—it would allow them to “opt out” of actually making contributions to that account.
“About half of American workers have no workplace retirement plan,” says Obama’s budget. “Yet fewer than 1 out of 10 workers who are eligible to make tax-favored contributions to an Individual Retirement Account (IRA) actually do so, while nearly 9 out of 10 workers automatically enrolled in a 401(k) plan continue to make contributions. The Budget would automatically enroll workers without employer-based retirement plans in IRAs through payroll deposit contributions at their workplace. The contributions would be voluntary—employees would be free to opt out—and matched by the Saver’s Tax Credit for eligible families.”
However, President Obama would not allow Americans to opt out of his prohibition on retirement-account savings that exceed the “reasonable level” of $3 million.
The second bullet point in Obama’s plan to “rebalance the tax code” is entitled: “Prohibit Individuals from Accumulating Over $3 Million in Tax-Preferred Retirement Accounts.”
“Individual Retirement Accounts and other tax-preferred savings vehicles are intended to help middle class families save for retirement,” says the Obama’s budget—which does not define exactly what a “middle class family” is, nor explain why someone who does not have a family is not intended to be helped by these type of accounts.
“But under current rules, some wealthy individuals are able to accumulate many millions of dollars in these accounts, substantially more than is needed to fund reasonable levels of retirement saving,” the budget continues, without explaining who exactly a “wealthy individual” would be, or how a “wealthy individual” would differs from a “wealthy family.”
“The Budget would limit an individual’s total balance across tax-preferred accounts to an amount sufficient to finance an annuity of not more than $205,000 per year in retirement, or about $3 million for someone retiring in 2013,” says the budget.
The budget says that if this part of Obama's plan is enacted, the Treasury will tax away about $9 billion from American savers over the next ten years.