Obama to cap tax-preferred retirement accts to $3MM

[Guest valueInv]

So, no holding company should be able to retain their earnings? They should be structured like REITs?

 

I used to have a couple of single family homes as rentals.  They have different rules for how they tax you based on whether they meet the "active" vs "passive" test.  If you were deemed "passive", you were limited in how many of your expenses you could deduct against your other income.

 

To be deemed "passive", you merely needed to hire a property manager.

 

Well...  uhh.... how is that different from how a holding company operates?  They have managers run their businesses, but that isn't considered "passive"?

 

I just think the very rich mainly have better lobbyists.

 

Do I need to explain the different roles a house and a corporation play in the economy?

[ERICOPOLY]

So, no holding company should be able to retain their earnings? They should be structured like REITs?

 

I used to have a couple of single family homes as rentals.  They have different rules for how they tax you based on whether they meet the "active" vs "passive" test.  If you were deemed "passive", you were limited in how many of your expenses you could deduct against your other income.

 

To be deemed "passive", you merely needed to hire a property manager.

 

Well...  uhh.... how is that different from how a holding company operates?  They have managers run their businesses, but that isn't considered "passive"?

 

I just think the very rich mainly have better lobbyists.

 

Do I need to explain the different roles a house and a corporation play in the economy?

 

You could explain to me what the spirit of the Personal Holding Company act is.

 

That's a corporation.  Clearly the law intended to discourage passive investors trying to skirt personal income tax rates via the use of holding companies.

 

So tell me how much more important is BNSF to the economy now that it is 100% held?  Were it only fractionally held, it is passively owned -- therefore less important to the economy?

 

 

[Kiltacular]

Ericopoly,

 

Your comments about the taxation of an IRA at death reminded me that long ago I remembered reading something about a guy that worked on this issue.  I haven't looked into it in detail and haven't read his book, but I remembered this guy's name -- Ed Slott.

 

Here's his book.  Not sure if it still applies or if it works with Roth's but might be something to look into.

 

http://www.amazon.com/Parlay-Your-into-Family-Fortune/dp/B000FZDKZ2

 

 

[ERICOPOLY]

Ericopoly,

 

Your comments about the taxation of an IRA at death reminded me that long ago I remembered reading something about a guy that worked on this issue.  I haven't looked into it in detail and haven't read his book, but I remembered this guy's name -- Ed Slott.

 

Here's his book.  Not sure if it still applies or if it works with Roth's but might be something to look into.

 

http://www.amazon.com/Parlay-Your-into-Family-Fortune/dp/B000FZDKZ2

 

Thanks for trying to help.

 

I read a few of the readers comments on the book:

 

quoting from one:

There are three important steps to take. The first is converting to a Roth IRA. The next is to carefully choose the correct beneficiary. It must be one person. More than one beneficiary is OK, but it's crucial to set up a new IRA account for each. Be certain that your beneficiaries understand the steps necessary to stretch their IRAs to last the lifetime of their heirs.

Some criticisms I have for his advice:

1)  He forgot to mention Obama will confiscate it and/or tax you a second time

2)  You'll ruin your kids lives if you die too young and they directly inherit your RothIRA when they are 17 years old.  Thus you need to leave the money to a trust where you stipulate that they don't get anything until they are at least 40.  You can change this later if you live long enough

3)  You'll pay taxes twice if you die before 59.5 or if you get divorced before 59.5 and your wife's lawyers take it from you

 

and

 

4)  You get completely bent over by the estate taxes.

 

I literally think of my RothIRA as if every single dollar more I make is really only 60% mine.

 

I told my wife we can think of everything we buy as if it's 40% off sale.  The government now pays for 40% of everything we buy (it's now 40% their money on every dollar of future appreciation).

 

This would be different in a taxable account -- I would just shove it into a Crummy trust and 100% of every future dollar owned would be my family's.

 

And every time the market crashes?  I could otherwise shove it into a GRAT (Grantor Retained Annuity Trust) where every dollar of appreciation goes to my heirs.  Yet I still get the money back that I put in... I get it right back again.

 

You should really read up on GRATs if you haven't yet heard much about them.  The Facebook founders are really big on GRATs.  They put their pre-IPO shares into them, then had their big IPO, and all of the massive instantaneous appreciation happens outside their taxable estates.

 

But that type of thing isn't what makes the populace mad, because they don't understand anything complex.  But they understand IRAs, because it's constantly marketed to them.  So they get upset that they have a 64% equity stake in Mitt Romney's IRA that is growing at a blistering pace, and they want to withdraw it immediately and forego all future amazing gains just to piss him off.  Cutting off their nose to spite their envious faces.

 

 

[ERICOPOLY]

Plus, I'm now feeling myself adopting the attitude that I don't even need to contribute to charity given these tax rates.

 

I can just say "Sorry, I've already given at the Treasury".

 

Romney pointed out that his tax rate is really higher than 14% because he tithes 10% to the Mormon church.  He called that "charitable" giving.

 

The problem I have with that is I don't want the needy of this country to have to be Mormons in order to get help.  Romney in that sense doesn't care about all poor, he cares only about Mormon poor.  Well, non-Mormons are American too.  So he can't argue that helping out Mormons excuses him from his US tax obligation.

 

But then again, if I ever become destitute I will be motivated to work hard if the alternative were joining the Mormons.  Not that there is anything wrong with Mormons, it's just that I don't want to join any church in order to get a bowl of soup.  So perhaps Romney's system of giving ensures that only the very needy come knocking for the handouts.

 

[Guest longinvestor]

Watching all the hyperbole of "what he could do with his money" or "what he may have done with taxes" about Buffett, it may be time to call out the suggestion of sleaze being thrown around here,

 

1) It is Obama and his administration that is proposing changes to the IRA as a way to close the budget gap. I find making Buffett guilty by "ideological association" FOS.

2) Buffett has pledged 100% of his wealth to charity. The 12 year or so plan to give it all away to the Gates foundation et al is fully on track. So why don't we all stick to what has happened versus the make-believe "what he may do" like change his mind or something.

3) The Buffett kids' inheritance all went to promoting their own respective charities. We saw what Romney's remainder charitable trust did. (Income for his kids like clockwork, nothing left for the charitable instituion). Romney's contribution has been new regulations re: remainder trusts so that no one else would ever do that. Wow! 

4) The suggestion that Berkshire Hathaway has been avoiding taxes is myth as well. When a similar spat brewed with the Bush Jr administration (someone in Dubya's admin accused Warren of playing the tax code like a fiddle), Buffett challenged them to lay bare the actual taxes paid (not rate, not bracket but actual $$) by the Fortune 50 companies that year (2004?), because BRK had paid as many $$ in taxes as the next forty Fortune 50 companies combined. I would love to find stats like this for the past 25 years and publish the actual taxes paid by corporations and show where BRK stands. As Warren has often stated, BRK does accounting like the old times: Add the revenues, subtract the expenses, pay taxes and report earnings. This is not how most other companies do accounting. Would love to see the actual taxes paid by Wall St firms. They don't pay fair taxes, their companies don't, they destroy wealth and lives of everyone except themselves. Job creators, my foot! Surely, they are not the butchers/bakers that Adam Smith had in mind.

 

Buffett is a great American hero and the larger good he stands for stands in plain sight for me. Plus, his leadership in getting all the billionaires on earth to share more is an epoch making event of our times and the world will be a better place thanks to Warren's character.

 

Few like him.

 

Had to get it out of me, now that feels better :D

 

 

[Guest]

Plus, I'm now feeling myself adopting the attitude that I don't even need to contribute to charity given these tax rates.

 

I can just say "Sorry, I've already given at the Treasury".

 

Romney pointed out that his tax rate is really higher than 14% because he tithes 10% to the Mormon church.  He called that "charitable" giving.

 

The problem I have with that is I don't want the needy of this country to have to be Mormons in order to get help.  Romney in that sense doesn't care about all poor, he cares only about Mormon poor.  Well, non-Mormons are American too.  So he can't argue that helping out Mormons excuses him from his US tax obligation.

 

But then again, if I ever become destitute I will be motivated to work hard if the alternative were joining the Mormons.  Not that there is anything wrong with Mormons, it's just that I don't want to join any church in order to get a bowl of soup.  So perhaps Romney's system of giving ensures that only the very needy come knocking for the handouts.

 

Eric, you are more Christian than most Christians it seems. :P

[ERICOPOLY]

longinvestor,

I'm fully in favor of charitable giving having a tax-free structure that also benefits the giver.

 

That is called a Charitable Remainder Trust.

 

Buffett's structure however is more than just about Buffett.

 

There are many Berkshire shareholders who enjoy the tax benefits but will not be giving to charity.  They are in for the free ride. 

 

 

Buffett's contribution to charity at this point is 100% safe.  Were they to threaten to rule that BNSF is in fact "passively" owned, he could merely push his shares into the Charitable Remainder Trust.

 

So none of what I propose in any way threatens he charity.  But it does threaten the structure.

 

Lastly, I don't want them to change the tax code.  I want people to still have these tax-efficient vehicles because I want to use them too.  And who knows, maybe I will wind up giving it all to charity when accumulate the wisdom that Warren has (at his age).  But as a young man, he was still enjoying the game of building it as am I.

 

 

[ERICOPOLY]

Regarding the class warfare, which Buffett opposes, his proposals to raise taxes at the individual level don't hit his class at all!  Well, just the 1% of his assets.  However  he could point out to Obama how the businesses at Berkshire run themselves and thus are essentially passive.  He could explain that a required distribution of passive income from his holding company, of say 30% of passive income, would be all that it takes to make it even with the common taxpayer (not his class).  That would fix the true class warfare that the billionaires play with their holding companies.  Meanwhile, Bufffett could move his Berkshire shares into a charitable remainder trust and the Gates Foundation would still get all of the money.

 

EDIT:  I made an error in estimating it to be 30% of passive income.  Just lookup the rules for Personal Holding Company to see how it ought to be treated -- that deals with passive investment holding companies.

[ERICOPOLY]

I also appreciate the argument raised that Berkshire pays a higher tax rate.  They might purchase a company that paid 25% tax rate, and then suddenly that company is paying the 35% rate that Berkshire pays.

 

However, skating to where the puck is going, during the elections Romney talked about a corporate tax rate of 25% and Obama suggested something more like 28%.

 

Well, both of those tax rates would make the Berkshire structure more and more appetizing to billionaires wishing to avoid higher taxes at the personal level.  So who knows, maybe Berkshire will trade at a premium and now is the right time to buy?

 

[Guest longinvestor]

longinvestor,

I'm fully in favor of charitable giving having a tax-free structure that also benefits the giver.

 

That is called a Charitable Remainder Trust.

 

Buffett's structure however is more than just about Buffett.

 

There are many Berkshire shareholders who enjoy the tax benefits but will not be giving to charity.  They are in for the free ride. 

 

 

Buffett's contribution to charity at this point is 100% safe.  Were they to threaten to rule that BNSF is in fact "passively" owned, he could merely push his shares into the Charitable Remainder Trust.

 

So none of what I propose in any way threatens he charity.  But it does threaten the structure.

 

Lastly, I don't want them to change the tax code.  I want people to still have these tax-efficient vehicles because I want to use them too.  And who knows, maybe I will wind up giving it all to charity when accumulate the wisdom that Warren has (at his age).  But as a young man, he was still enjoying the game of building it as am I.

 

I'm fully in favor of charitable giving having a tax-free structure that also benefits the giver.

That is called a Charitable Remainder Trust.

 

Well, I'm not. Before the rules changed in 1996 (thanks to abuse by the Romney types), virtually nothing went to the charity. After the rule changed, minimums have been set for the charity. But both before and after the law, the only thing that is guranteeed is the admin fees and the fund fees that are collected by the FI. The "Remainder" in the Remainder trust will continue to remain small. What I've personally learned from Buffett's views on giving is that when you plan to "give", you simply "give" un-encumbered by what your kids may or may not have or need down the road. I'm convinced that my kids will be worse off should I rig up a lottery win for them down the road. Would rather they go get a job.

 

There are many Berkshire shareholders who enjoy the tax benefits but will not be giving to charity.  They are in for the free ride.

 

How do you know that?

 

 

Lastly, I don't want them to change the tax code. >

 

This is a writing on the wall. It simply does not add up without getting more in revenues. I am fully in favor of them going after all the tax loopholes, every single one of them. The overwhelming polarization of wealth over the past 20 years is because of all the new tax loopholes. I personally would like these debated vigorously in public, no matter whether they pass or not. The sun needs to shine of them. Romney should be ashamed about not revealing his tax returns. I hope no Prez ever gets elected without doing this.

[ERICOPOLY]

Well, I'm not. Before the rules changed in 1996 (thanks to abuse by the Romney types), virtually nothing went to the charity.

 

Don't let a bad apple spoil the cart.  It sounds like the rules of the trust merely need reform.  Such as the giver gets an income only as a certain percentage of what the charity will get.

 

I had a very wealthy relative that was an heir to a fortune -- Santa Fe Railroad money.  My grandmother received an income from a trust, the remainder of the trust went to a variety of charities (such as the University of Chicago).  There are still educations funded today with scholarships from the Richter Trust.

 

My relative was ruined by his fortune that he inherited.  He was constantly paranoid of women -- who wanted to get close to his fortune.  He died alone an old man.  My father attended his funeral in Pasadena and the only other attendees where his lawyers, bankers, trust officers, etc...

 

 

I'm convinced that my kids will be worse off should I rig up a lottery win for them down the road. Would rather they go get a job.

 

I'm a step ahead of that and have stipulated that they must have earned income -- so they can get a matching payment from the trust.  Much like a corporation commonly provides a matching contribution to 401k savings..  This way, they can pursue something they have a passion for (like teaching) and yet still have the cash flow to raise a family and save for retirement.

 

Then there is also disability help -- I don't want them to become wards of the state.  Would like to provide a better private facility when they are dying.

 

I'm not done with the planning for how it gets distributed, but I'm doing it in a way to ensure they cannot just be drug addicts sitting on a beach.  I'm not going to rob them of their initiative, but I do want them to pursue what they love in life rather than taking a Wall Street job merely because it pays better than being a laboratory scientist.

 

There are many Berkshire shareholders who enjoy the tax benefits but will not be giving to charity.  They are in for the free ride.

 

How do you know that?

 

Are you asking me how I know that Berkshire reinvests income rather than distributing it?  That's the tax benefit.  Trusts have disadvantages because they have maximum income tax rates -- so Berkshire shares are optimal for a trust.  That trust is the means by which estate taxes are reduced.

 

 

 

[Guest longinvestor]

Well, I'm not. Before the rules changed in 1996 (thanks to abuse by the Romney types), virtually nothing went to the charity.

 

Don't let a bad apple spoil the cart.  It sounds like the rules of the trust merely need reform.  Such as the giver gets an income only as a certain percentage of what the charity will get.

 

I had a very wealthy relative that was an heir to a fortune -- Santa Fe Railroad money.  My grandmother received an income from a trust, the remainder of the trust went to a variety of charities (such as the University of Chicago).  There are still educations funded today with scholarships from the Richter Trust.

 

My relative was ruined by his fortune that he inherited.  He was constantly paranoid of women -- who wanted to get close to his fortune.  He died alone an old man.  My father attended his funeral in Pasadena and the only other attendees where his lawyers, bankers, trust officers, etc...

 

 

I'm convinced that my kids will be worse off should I rig up a lottery win for them down the road. Would rather they go get a job.

 

I'm a step ahead of that and have stipulated that they must have earned income -- so they can get a matching payment from the trust.  Much like a corporation commonly provides a matching contribution to 401k savings..  This way, they can pursue something they have a passion for (like teaching) and yet still have the cash flow to raise a family and save for retirement.

 

Then there is also disability help -- I don't want them to become wards of the state.  Would like to provide a better private facility when they are dying.

 

I'm not done with the planning for how it gets distributed, but I'm doing it in a way to ensure they cannot just be drug addicts sitting on a beach.  I'm not going to rob them of their initiative, but I do want them to pursue what they love in life rather than taking a Wall Street job merely because it pays better than being a laboratory scientist.

 

There are many Berkshire shareholders who enjoy the tax benefits but will not be giving to charity.  They are in for the free ride.

 

How do you know that?

 

Are you asking me how I know that Berkshire reinvests income rather than distributing it?  That's the tax benefit.  Trusts have disadvantages because they have maximum income tax rates -- so Berkshire shares are optimal for a trust.  That trust is the means by which estate taxes are reduced.

 

Peace, bro! I was careful not to cast any insinuation against you personally. Just giving my back to my hero, Buffett. He makes me think and behave like a billionaire, which I'm not ;D

 

Your views on your kids's future are aligned with mine, especially about them pursuing their passion vs a Wall St job. I've been thinking a lot about that as well but then tell myself that my sense of financial well being should have very little to do with them pursuing their passion. Like you, I'm not done thinking about it.

[SouthernYankee]

I would applaud both Buffett and Romney, and whomever else, can follow the law and pay as little in taxes as they have to. They are not the ones who are changing the rules under which people made decisions. Although I may never have the problem of running into this $3million cap (I will try my best though!), the person who is pushing this is the president, and his name is Obama. Him and this administration, as well as many others in the liberal/progressive political sphere, have been looking at this pool of money for a long time, and have been trying to figure out ways to get their greasy palms on it.

 

Beware the politician who says he wants to help, as he will look to do so with your money, not his!

[Guest longinvestor]

Regarding the class warfare, which Buffett opposes, his proposals to raise taxes at the individual level don't hit his class at all!  Well, just the 1% of his assets.  However  he could point out to Obama how the businesses at Berkshire run themselves and thus are essentially passive.  He could explain that a required distribution of passive income from his holding company, of say 30% of passive income, would be all that it takes to make it even with the common taxpayer (not his class).  That would fix the true class warfare that the billionaires play with their holding companies.  Meanwhile, Bufffett could move his Berkshire shares into a charitable remainder trust and the Gates Foundation would still get all of the money.

 

EDIT:  I made an error in estimating it to be 30% of passive income.  Just lookup the rules for Personal Holding Company to see how it ought to be treated -- that deals with passive investment holding companies.

Berkshire management actively:  make decisions on compensation, make capital investments in the operating companies(this is accelerating), help fund aquisitons (this is accelerating), lend money (Clayton et al) and yes, on occasion, intervene managerially when companies go off the rails. Ex. Netjets. I can see nothing but more active management in the future than in the past with the growing pie of the operating companies. True, they keep management intact during the aquisition but that is a refreshing alternative to how PE firms and large corporations do it with M&A. They do it to make BRK a welcoming home for owner-operators looking for a long term partner.

 

None of this is "passive" investment somehow aimed at tax avoidance or class warfare like you are spinning it. 

 

 

 

 

 

 

[SouthernYankee]

http://www.zerohedge.com/news/2013-04-08/next-domino-australia-doubles-tax-retirement-savings

 

Ericopoly, sorry to bring you the bad news, but it looks like the wonderful politicians in Australia have decided to change the rules Down Under. I hope it does not affect you if you move there. 

 

I wonder which type of politician is in power over there, a liberal/progressive or a conservative/Tea Party type?? I am sure they are doing it for the children!! LOL!  :'(

[ERICOPOLY]

Regarding the class warfare, which Buffett opposes, his proposals to raise taxes at the individual level don't hit his class at all!  Well, just the 1% of his assets.  However  he could point out to Obama how the businesses at Berkshire run themselves and thus are essentially passive.  He could explain that a required distribution of passive income from his holding company, of say 30% of passive income, would be all that it takes to make it even with the common taxpayer (not his class).  That would fix the true class warfare that the billionaires play with their holding companies.  Meanwhile, Bufffett could move his Berkshire shares into a charitable remainder trust and the Gates Foundation would still get all of the money.

 

EDIT:  I made an error in estimating it to be 30% of passive income.  Just lookup the rules for Personal Holding Company to see how it ought to be treated -- that deals with passive investment holding companies.

Berkshire management actively:  make decisions on compensation, make capital investments in the operating companies(this is accelerating), help fund aquisitons (this is accelerating), lend money (Clayton et al) and yes, on occasion, intervene managerially when companies go off the rails. Ex. Netjets. I can see nothing but more active management in the future than in the past with the growing pie of the operating companies. True, they keep management intact during the aquisition but that is a refreshing alternative to how PE firms and large corporations do it with M&A. They do it to make BRK a welcoming home for owner-operators looking for a long term partner.

 

None of this is "passive" investment somehow aimed at tax avoidance or class warfare like you are spinning it.

 

Trust me, you are truly preaching to the choir here.

 

I can't for the life of me understand the "passive" vs "active" designation distinction for Mom&Pops who have real estate rentals.  The property managers have to be managed.  You have to set their compensation.  You have to ensure they're actually advertising your rentals as they are meant to be doing.  When the property needs a new roof, it's you personally that has to think about it, hire the contractors, etc... etc...  There is nothing entirely passive about it.  Yet they still managed to make it the law.

 

It however is relatively more passive.  It's like a spectrum.

 

Anyways, Buffett is also my hero.  I'm just trying to help him pinpoint how "his class" is winning at this class warfare.  Raising personal dividend and capital gains taxes won't affect his class.  You'd need to have required distributions from holding companies in order to achieve the equality that he is hoping for in the tax code.  Otherwise, it's the total return that matters -- the retention of income for capital gains. 

 

By criticizing his structure I hope you realize I am just criticizing myself -- I plan to hold shares in companies like his if my RothIRA is taken away.  It's the next-best tax sheltering scheme for avoidance of individual taxation.

 

 

[ERICOPOLY]

http://www.zerohedge.com/news/2013-04-08/next-domino-australia-doubles-tax-retirement-savings

 

Ericopoly, sorry to bring you the bad news, but it looks like the wonderful politicians in Australia have decided to change the rules Down Under. I hope it does not affect you if you move there. 

 

I wonder which type of politician is in power over there, a liberal/progressive or a conservative/Tea Party type?? I am sure they are doing it for the children!! LOL!  :'(

 

That article hit on a sore spot for me because they compared IRAs to the Australian superannuation plan.

 

However, after speaking with the Australian Tax Office (the "ATO") they informed me that my IRA is not an "Employer sponsored" plan.  Had I kept my Microsoft 401k funds in place instead of rolling them to an IRA, then they would qualify as "employer sponsored".

 

So do you know how they treat IRAs?  They called them FIF  (Foreign Investment Fund) -- last I checked, they were revising the rules on how they'd tax these.  In the past (pending revision), they've treated them as offshore tax avoidance schemes.  So what they did is they marked-to-market the value of the IRA and any market gains in the Net Asset Value of the IRA were taxed as Regular Income (45% tax rate) for that year.

 

So even if you held Berkshire Hathaway in that IRA, and never traded it, they'd mark any appreciation as regular income.  Even though you haven't even made a withdrawal!!!!

 

 

And THAT'S the reason why I had to cancel our plans to go to Australia last year.  I found out about that at the 11th hour -- we were already making plans with shipping companies, literally!

[Munger_Disciple]

Looks like Obama is proposing all kinds of new taxes including higher estate taxes:

 

http://www.bloomberg.com/news/2013-04-11/obama-squeeze-on-savings-of-wealthy-muddles-estate-plans.html

 

[Martian]

http://www.cnbc.com/id/100633882

 

"Based on interest rates back to 2006, the IRA cap could fall as low as $2.2 million, EBRI says. At that level, the cap could hit nearly three percent of all retirement accounts"

[ERICOPOLY]

Looks like Obama is proposing all kinds of new taxes including higher estate taxes:

 

http://www.bloomberg.com/news/2013-04-11/obama-squeeze-on-savings-of-wealthy-muddles-estate-plans.html

 

 

Is this article giving me false hope?

 

1)  Limits RothIRAs to $3.4million (instead of $3million)

2)  Says that the cap is reached merely by banning future contributions (but doesn't mention forced withdrawals of excess)

 

The budget’s proposed cap on retirement savings would apply to the total of an individual’s tax-favored accounts including IRAs and 401(k)s. It would be reached by barring taxpayers from adding more tax-free money once the limit is reached. Sponsors of retirement plans and IRA trustees would report each participant’s account balance as of the end of the year.

 

 

 

[ERICOPOLY]

I need to find out what his proposal is for RothIRA mighty quick here.

 

Every extra dollar of gains I accumulate would possibly be taxed in 2014 -- at regular income rates.  That would be 50% in taxes!

 

So you know how guys like Klarmann speak of making sure you have like 4 dollars of upside for every 1 dollar of downside?

 

Well, I don't get any tax deduction for losses in a RothIRA, but if my gains are taxed at 50% it really changes the risk/reward math, now doesn't it.

[Munger_Disciple]

Is this article giving me false hope?

 

May be. See page 18 in the proposal:

 

http://www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/strengthening.pdf

 

"The Budget would limit an individual’s total

balance across tax-preferred accounts to an

amount sufficient to finance an annuity of

not more than $205,000 per year in retirement,

or about $3 million for someone retiring in 2013."

 

[ERICOPOLY]

Is this article giving me false hope?

 

May be. See page 18 in the proposal:

 

http://www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/strengthening.pdf

 

"The Budget would limit an individual’s total

balance across tax-preferred accounts to an

amount sufficient to finance an annuity of

not more than $205,000 per year in retirement,

or about $3 million for someone retiring in 2013."

 

Remember the tech bubble when stock market was 2x and then suddenly halved again?

 

Surely Obama realizes that if you've got $3m, and then it suddenly doubles, it can suddenly be worth 50% again.  But along the way you were forced to liquidate 1/2 of your retirement funds.

 

Now after the crash you have $1.5m in the account, and your dividend income (and annuity purchasing power) is halved.

 

This makes no sense.

 

Or people with $1.5m will suddenly have $3m in their account, won't be able to contribute, but then the market will crash and it will be $1.5m again.

 

Obama must have learned something about bubbles by now.

[dowfin1]

Is this article giving me false hope?

 

May be. See page 18 in the proposal:

 

http://www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/strengthening.pdf

 

"The Budget would limit an individual’s total

balance across tax-preferred accounts to an

amount sufficient to finance an annuity of

not more than $205,000 per year in retirement,

or about $3 million for someone retiring in 2013."

 

But then compare the budget analysis language:

 

 

Limit the total accrual of tax-favored retirement

benefits.—the Administration proposes to limit the de-

duction or exclusion for contributions to defined contribu-

tion plans, defined benefit plans, or IrAs for an individual

who has total balances or accrued benefits under those

plans that are sufficient to provide an annuity equal to

the maximum allowable defined benefit plan benefit.  this

maximum, currently an annual benefit of $205,000 pay-

able in the form of a joint and survivor benefit commenc-

ing at age 62, is indexed for inflation, and the maximum

accumulation that would apply for an individual at age

62 is approximately $3.4 million.  the proposal would be

effective for taxable years beginning after december 31,

2013. 

 

 

page 200.  http://www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/appendix.pdf

This language is ambiguous as to whether only the deduction/exclusion for new contributions will be eliminated (and the full account will continue to be tax sheltered), or whether the accounts will be capped and the surplus automatically taxed.

 

I have been looking for the last hour and cannot find any specific legislative language.  Has anybody?