Under the White House’s audacious $3.8 trillion budget proposal, released in April, the amount you can accumulate in qualified retirement accounts would be capped. As a senior administration official lamented, some people are accumulating “substantially more than is needed to fund reasonable levels of retirement saving.”
President Obama has calculated that Americans don’t “need” more than $205,000 per year in retirement. On that basis, he has decreed that we shouldn’t be able to amass a total balance of more than $3 million in IRAs, 401(k)s, and other tax-favored accounts, taken together.
We’ve warned that the government would move piecemeal to change the rules of the game and impose new restrictions on retirement accounts. That’s exactly what this move is – another step in the direction of grabbing wealth out of IRAs and 401(k)s.
Team Obama has so far been vague about how the new restrictions would be implemented. As the Boston Globe reported, “The administration hasn’t explained how the cap would work. Officials haven’t said whether they would tax existing balances above $3 million or prevent people from adding more money to their accounts once they reach that amount.
“The White House also didn’t say whether the limit would be indexed for inflation or whether it would affect defined-benefit pension plans.”
The bottom line is that if you’re a high net-worth investor who exceeds the $3 million threshold, or if you’re at risk of exceeding it in the near future, you should now explore tax-efficient ways of socking away wealth outside of qualified retirement accounts. They’ll only come under increasing attack as the government’s funding crisis deepens.