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.