Obama Budget Includes Wish to Limit Retirement Account Size to $3 Million
Mat Sorensen


April 9, 2013

Many clients have e-mailed me about President Obama’s new budget proposal which seeks to limit the collective size of an individuals retirement accounts (including IRAs and 401(k)s) to $3 Million dollars. This measure does not contain specifics but does indicate that it will raise $9 Billion dollars over a decade for the federal government to spend. Opposition to this measure has been significant and I was surprised to hear that the government would seek to limit how much one could save and invest for their retirement in a retirement account. As I heard about the proposal and read other articles on this new cap on retirement plans I realized that I needed to go to the actual budget proposal to see for myself what it contained. When I read the actual budget I learned two important things.

First, the budget proposal as a whole actually has some provisions that are good for retirement plans and encourages American savings. Obama’s budget includes a proposal to exempt accounts with $75,000 or less from required minimum distribution rules. Also, the budget proposal provides rules requiring employers with 10 or more employees who do not offer a retirement plan to at least offer direct deposit IRA accounts to their employees to be funded by employee contributions. Also, the IRS would double the federal credit from $500 to $1,000 to employer’s who offer employer sponsored plans such as 401(k)s to their employees. So, there are some good things for retirement plans in the President’s agenda. The $3 Million cap has understandably overshadowed everything else though.

The second thing I learned is that the budget is a wish list of sorts for President Obama that doesn’t reflect reality of what he has already signed into law and what is politically practical. For example, the budget proposal includes measures to reduce the estate tax exemption to $1M and to increase taxes on individuals making more than $200,000 a year. If you recall, President Obama signed into law an estate tax exemption of over $5M and raised taxes only on individuals making $400,000 or more.  And this was only three months ago. So, keep this proposal in context, as it requires the approval of house republicans and a closely divided senate. Bottom line, many of these provisions, including the retirement plan cap proposal, amounts to a long shot wish list and we will have to see how the proposal gets sorted out over the coming months. In the meantime, write your Congressman and Senator if you don’t like having a cap on how much you can invest and grow your retirement account.

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