Potential Issues With Obama’s Restriction On Retirement Accounts

As I previously discussed, Obama’s 2014 budget was recently released. Obama’s budget eliminates a tax loophole that affluenthouseholds are using. The provision is a restriction on retirement accountssuch as IRAs and 401(k)s. The provision disallows taxpayers from adding moretax-free money once a three million dollar limit is reached. The proposedbudget restricts a person’s balance across tax-preferred accounts to finance anannuity of not more than $205,000 per year in retirement, or $3 million inretirement accounts. A result the restriction might include the termination ofmany company plans reaching the account limit, or quite possibly the companiesrefusing to add administrative costs could remove employer contributions. Thiscould negatively affect the middle class.

This proposedrestriction would bring about many issues:

1. Aredefined benefits included in the total balance across tax- preferredaccounts? 
2. Wouldinterest rates increase when annuity account balances dip below the $3 million?If they do when would those rates apply? 
3. Whatbasis is used to determine an annual annuity of $205,000? 
4. Whendoes the limit apply? 
5. Whathappens if you exceed the limit?  
6. Whattype of administrative issues would it cost employers?
7. DoRoth earnings count toward the limit?
8. Whatwill the limit be based on? 

See Sheldon Smith and Chris Rylands,The President’s Budget Attack on the Supposed “Loophole” of Saving for Retirement, BenefitsBryanCave.com, Apr. 12, 2013.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.