Is Government Action Threatening Your IRA?


Providing a comfortable retirement for the U.S. workforce is extremely important to many financial industry leaders. Helping clients reach their full investment potential is the number one goal. President Obama’s recently released 2014 budget proposal, however, is seeking to place limits on the amount of lifetime savings in individual retirement accounts (IRAs), as well as other tax-deferred savings options.

The cap would only allow an individual to save the amount needed by a 62 year old to buy an annuity that would generate a $205,000 annual payment. If the budget is approved, the cap would prohibit individuals from accumulating over $3 million. Unless the cap value increased or the total account value fell below the cap, no additional money could be contributed.

A senior administration official stated the cap would address wealthy taxpayers who currently “accumulate many millions of dollars in these accounts, substantially more than is needed to fund reasonable levels of retirement saving.” The government says the cap would also save $9 billion over the next decade.

The government already has stringent limits on retirement contribution amounts, but if an asset contributed to an IRA significantly increases in value, the investor reaps a large sum of tax-deferred earnings.
This year, the limit for IRAs is $5,500. The maximum 401(k) contribution for individuals under age 50 is $17,500, and the limit for worker and employer contributions combined is $51,000.

If the proposal is approved, many companies are already expressing they will deactivate their 401(k) plans and move the money to other tax-deferred options.

You may be asking who will be affected. According to the Employee Benefit Research Institute (EBRI), the only savers who would currently be affected are a small percentage of people age 60 or older with at least one IRA or 401(k) account in 2010 and 2011.

As for younger individuals, EBRI points out that time accumulated savings will increase the probability that younger workers will reach the inflation-adjusted limits by the time they reach age 65. According to the organization, 2.2 percent of those currently ages 26–35 will be affected by the $3 million cap, compared with just 0.1 percent of those ages 56–65. “At the $2.2 million level cited above, 6.0 percent of younger retirement savers would be affected by age 65, compared with 0.3 percent of those ages 56–65,” says EBRI.

While all of this may seem daunting for younger individuals, the cap could shrink in the future if interest rates rise, causing annuities to get cheaper.

No matter your age, having a plan in place is the key to ensuring your financial future is safe and secure. With so many variables impacting the industry, it is important your future is in the right hands.