Capping your Retirement Account

by Laura Ehrenberg-Chesler on April 12, 2013

in Investment Strategies,politics,retirement,taxes

We try hard not to blog about topics that may be “political”, though there are times when it is relevant to our work, and worth blogging about.  The following is .  It is always discouraging to see an attempt to put policies in place that discourage savings.

How many times have you read financial-advice stories lecturing you to max-out on your IRA, save as much as you can in your 401(k), and even pay taxes now to change your regular IRA into a Roth IRA that will be tax-free until you die?

Well, be careful how much you save.

That”s the message in President Obama”s budget for fiscal 2014, which for the first time proposes to cap the amount Americans can save in these tax-sheltered investment vehicles. The White House explanation is that some people have accumulated “substantially more than is needed to fund reasonable levels of retirement saving.” So Mr. Obama proposes to “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.”

The feds may think $3 million is all you need after a lifetime of work, but that”s roughly the value of a California police sergeant”s pension if she works for 30 years, retires at age 50 and lives to normal life expectancy.

Out in the private economy, people generally have to work longer than that before they retire, and some of them do manage to save significant amounts. We”re talking about people who work for decades and abstain from buying the bigger house or the new car so they can contribute the maximum to their 401(k)s or IRAs. The people who defer gratification and build a nest egg to avoid becoming a burden on their kids or their fellow taxpayers. The people whose savings finance productive enterprise. You know, the bad guys.

The Administration”s political motive here is two-fold: First, it”s a redistributionist play and a revenue grab. But for many on the left it”s also about reducing the ability of individuals to make themselves independent of the state. They have always disliked IRAs, just as they oppose health-savings accounts, because over time they make Americans less dependent on federal entitlements or transfer payments.

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