<p>@dadinator, I’m sure that DC won’t be happy until they have all of our money, and then some…because it’s not ours, it’s theirs. We only get to keep what they will allow. But as DrGoogle says, how do you provide a cap? Disallow deductions after a certain point, or confiscate at 3.4 million? The article doesn’t say how. And what authority do they have to cap pensions? That is negotiated by the union or the individual, and people pay taxes on their pensions. So do they just confiscate pensions over a certain amount? What next?</p>
<p>Of course, why worry. He’s never gotten a budget passed. His 2013 proposal was rejected 99-0.</p>
<p>I’m worried these proposals will give young people more reasons not to start contributing to their retirement accounts. I’m not sure it’s well thought out. I think for the really rich people, they don’t care, for the small business owners, who are the ones creating jobs, it might make a difference.</p>
<p>Is a Roth a retirement vehicle or a way
to make unearned income that isnt taxed? </p>
<p>At some point the line is crossed and we arent really talking about retirement savings anymore. </p>
<p>The downside of a regular ira is your dividends and capital gains are taxed at ordinary rates and not at capital gains tax rates or dividend tax rates.</p>
<p>@dadinator, I had heard there was some limit, though didn’t know what it was. But what I don’t understand is that this proposal calls for an overall cap on all retirement accounts, including pensions, for individuals earning more than 183K, or couples earning more than 225K. Meaning that you lump all annual payments together, and you can’t earn more than that? So if your pension was over that, they confiscate that and any 401K/ IRA payouts? I don’t know, the proposal seems short on specifics. Probably purposefully.</p>
<p>@busdriver11- my understanding is that the recent proposal is based on capping further contributions to retirement savings accounts (IRAs and 401ks) and is not meant to impact employer sponsored defined benefit plans.</p>
<p>@dadinator, this is the wording in the plan that perplexes me, “The overall cap for all tax-preferred retirement accounts would limit them to providing an annual retirement income of $205,000, which would currently cap tax-preferred accounts at $3.4 million, but could go lower as interest rates rise.” Combine that with this phrase, “include an overall cap on all retirement accounts, including pensions,” and I’m not sure what you get.</p>
<p>There are several different items in this bill, and I don’t know if I am incorrectly combining them. An overall cap on all retirement accounts, including pensions, doesn’t sound like a separate cap for pensions to me, that as you brought up–is 210K right now. The wording makes it sound as if for all retirement accounts and pensions combined, you can only get a certain amount of money from them.</p>
<p>I have no problem with the government deciding to limit deductions for high earners, or anyone at all. If they don’t think it’s a worthy tax break, so be it. I’d be thrilled to have an excuse to stop contributing to my 401K, actually. When it sounds like they are limiting what you can collect from your own accounts and negotiated pensions, that’s what worries me. I hope I am incorrect about this.</p>
<p>First of all, there are proposals. Nothing has passed.</p>
<p>There may be proposals that limit what can be in a retirement account. These propsals are also inflation adjusted. So a 3,000,000 cap today may be a 6,000,000 cap in 24 years.</p>
<p>When the cap is reached, you have to withdraw the excess. The excess will no longer be earning unearned income tax free. The excess will not be confiscated.</p>
<p>For example, you have 3.1 million in a roth with a cap of 3 million. You have to withdraw 100,000. If there is income generated by the 100,000, going forward, that income is taxed. </p>
<p>I am in favor of something like this because these retirement accounts are becoming tax dodges. </p>
<p>The roth rollover was set up because tax revenues collapsed with the economy and it was a way to generate short term revenues. The economy is doing a little better so we should end this.</p>
<p>If this rollover isnt ended, I may use it myself someday, but I think it should end. </p>
<p>We should not confiscate people 's accounts who have rolled over their iras. </p>
<p>I haven’t seen anything about confiscating accounts. There are no proposals to confiscate accounts. </p>
<p>@dstark - the proposal was to eliminate further contributions after the cap was reached and the cap was not going to be indexed to inflation, but to actuarial assumptions (so the cap could actually decline). The amount above the cap was not going to be taxed:</p>
<p>“When the cap is reached, you have to withdraw the excess. The excess will no longer be earning unearned income tax free. The excess will not be confiscated.”</p>
<p>If you reach the cap before the age that you can withdraw, you will pay some huge tax penalties, unless they create some new rules to allow for that. And there will never be confiscation. It will be called an “additional tax” or “forfeit”. It would be futile to put a cap on a Roth to force withdrawals, as there are no taxes paid on the withdrawals from the Roth. But they probably should entirely do away with all new Roth contributions or conversions, there will be trillions of profits that are never taxed.</p>
<p>Dadinator, at what point do you not fund a regular ira because of iras taxed at ordinary tax rates instead of capital gains and dividend tax rates? </p>
<p>@dstark, I don’t have a problem with the proposals that dadinator linked either, as long as they are what he believes they are. It’s the fine print and interpretation I’m not so sure of. The proposal that you linked, I do have a problem with. As far as, “The president proposes that non-spouses inheriting a Roth — with a few exceptions — would have to withdraw the entire balance within five years. Adding to the pain, Obama’s proposal would require the original Roth IRA owner to take distributions after 70 1/2.”</p>
<p>It sounds like he doesn’t realize that taking money from your Roth is tax free. So what is the point of forcing distributions? And making your heirs withdraw the entire balance within five years? Unless your estate is very large, that also has no tax consequences, but potentially forces a large amount of money to your children (or whomever inherits it besides your spouse), in a short amount of time. That just sounds like an ignorant proposal, not intended to raise taxes. I doubt any of this will pass anyways.</p>
<p>I am always annoyed when they try to change tax laws for people who had already made contributions or decisions based upon the current law. It’s one thing to change the rules for future contributions, a completely different thing to change laws for people who had made choices based upon current law.</p>
<p>If I have capital gains in a regular account, I am not forced to take them. And if I die, the basis is stepped up. The cap gains tax us eliminated. That is one situation. </p>
<p>Another is you do pay cap gains taxes. The rates are lower. You do pay dividend taxes. The rates are lower than ordinary rates. At what point is it better not to fund your retirement? I admit I haven’t done the calculations.</p>
<p>Lets assume the tax rates are going to be the same in the future. By the way , tax rates are adjusted for inflation, so even if tax rates are raised in the future your tax bill may be lower.</p>
<p>“Roths are retirement plans. You are supposed to take distributions because you are supposed to use the money in a roth for retirement.”</p>
<p>But there is no specific distribution that you are supposed to take. You have the choice of when and how much to take. If you want to wait until you’re 100 yrs old to take some of it out, you have that option.</p>
<p>There is no way tax rates will be the same in the future. The debt is climbing, and entitlement costs are climbing also. The money has to come from somewhere. </p>
<p>What’s the obsession with wealth distribution? I mean really rich people will have all sorts of scheme to evade tax. This proposals only target the less than $10 million crowds.</p>