The United States of Cyprus: Will American Retirement Accounts be Raided?

p>As I skimmed through a copy of the president’s 2014 budget, which by the way, is chock full of fluffy spending at the expense of the taxpayer, I caught site of an interesting proposal regarding retirement accounts.   Let me back up a bit and rephrase myself — I caught sight of a “hair-brained scheme” that will essentially punish early and consistent retirement savers.  In order to raise a paltry $9 billion over 10 years, an individual’s tax-preferred retirement account would be limited to $3 million (or $205,000 for each retirement year, annuitized) for an individual retiring in 2013.  This year! The reason?  Says the budget,

“Under current rules, some wealthy individuals are able to accumulate…more than is needed to fund reasonable levels of retirement saving.”

I love it when politicians use vague terms such as “some,” “wealthy” and “reasonable.”  It is a way of couching a problem without providing concrete evidence that a problem exists.  Evidently, there are some people out there that just have way too much in retirement savings and we need to stop them before they go out and spend money and stimulate the economy!  No golf, no yachts, no trips, no motorized scooters.  Nope, nope…retirees need to be near destitute, living on the fringes, and relying on Social Security and Medicare to meet their needs.  I’m uncertain what country the administration has been visiting (Cyprus, perhaps?), but in the United States most baby boomers are ill-prepared for retirement.  To impose a limit on the accruals in a tax-deferred account (these are the accruals, mind you, not contributions, which are already limited) is simply a counter-productive solution to the real problem:  People are not saving enough money for retirement.

Suppose in an act of congressional foolhardiness or unchecked presidential executive powers, such a limit are passed. The devil is in the details:

  • For the person retiring today that has, say, $3.5 million in a retirement account, what happens to the half a million over the limit?  Does it get confiscated by the IRS or the U.S. Treasury or handed over to the European Central Bank?
  • For those who are years away from retirement, is this a set limit or is it adjusted for inflation?  After all it is absolutely plausible that an individual who begins making maximum contributions to a traditional or Roth 401(k) until age 67 could easily accrue more than $3 million in a retirement account.
  • Does this limit pertain to Roth accounts, which are already taxed, or just traditional tax-deferred accounts?

After reading article-after-article about the low savings rate among Americans, it is irresponsible and simply immoral to suggest that Americans should save less or be punished by a government that can’t tighten its purse strings.

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Comments (10)

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  1. Espy says:

    You mean the government is actually spending money to punish those who save all of their nickels in anticipation of retiring responsibly?

    I cannot, and will not believe that. *sarcasm

    Should I expect Congress to be first in line to tax their retirement accounts?

  2. Joe Barnett says:

    There are annual limits to the contributions an individual can make to a tax-preferred retirement account. This is a tax on (confiscation of)earnings from investment choices. It would discourage retirement savings altogether, since in the future the limit on accumulated savings could be lowered again and again.

  3. Kyle says:

    If excess holdings are headed into with low interest rate holdings well, at least those are a little more inelastic to regulatory shenanigans. Sort of like capital gain realizations, ‘the rich’ are wealthy for a reason. Regardless, forcing people to assume investment risk with revenue over $X after Fannie Mae is pretty awful.

    Must be because the people who elected this retard didn’t actually lose anything a few years ago. I took a 70 percent hit for having faith in the markets and not dumping out, because I know that if everyone withdrew from the market it would have caused free fall. Maybe if transfer payments suffered commensurate abuse there would have been a regime change.

    Get your fiscally irresponsible hands out of my retirement account.

  4. Brian Williams. says:

    Obama’s budget would cap IRAs. But don’t worry, he also proposes cutting Social Security.

  5. Gabriel Odom says:

    We already consume nearly 96% of everything we make in this country, and they want us to save less?!

  6. Andrew says:

    You actually don’t have to earn a ridiculously high income to reach more than 3.5 million in savings over a few decades of savings and accruing interest. Plus, if you retire during your 60′s, you may have a couple or even a few decades left to live, you’ll be happy you had at least that amount if you don’t want to lower your standard of living. So, I just don’t understand where this arbitrary number came from and why someone would be penalized for saving more money for retirement.

  7. Cat K says:

    So, this means that one’s savings is annuitized/taken by the government (which could cry “crisis” and not be able to pay the promised 205 K per year at any point). Does the 205K per year include Social Security? “The King” says that’s all we need for retiremnt. OK, but try living in NY State on a taxed 205K! And, is this amount per couple or per individual or is it unfairly the same for one or two people? Plus, you could not access the principal, if it is an annuity nor leave anything to heirs that from such accounts. This is theft despite the promised yearly payments. Is no one upset about this? In the media, I hear crickets! Is this because savers are not an approved victim group? Well, hey Democrats this means your accounts, too.

  8. Saket says:

    I think it is terrible how they are forcefully capping retirement savings to 3 million. This is a bad signal. We should be encouraged to save more often.

  9. Patel says:

    I am surprised the Cat knows so much about Retirement? Too bad my pet isn’t that sharp :(

  10. Paket says:

    It is like the current major economic crisis has made it clear about the importance of saving and not being in debt, and now we have government policies that punish people for saving and doing all the “responsible things!”