The administration released a preview of their budget proposal which would save around $9 billion over a decade by capping the amount a person could withdraw or hold in their retirement plan, like an IRA.According to an articles in The Hill, Bloomberg, and Forbes one of the President’s spokespeople said that wealthy taxpayers can currently “accumulate many millions of dollars in these accounts, substantially more than is needed to fund reasonable levels of retirement saving.
”The President’s proposal will mandate that no one can withdraw from their retirement plan more than $205,000 per year. The article suggests that means a cap of around $3 million for retirement. The article is not clear how the proposal equates the withdrawal rate with the cap. It is possible the President wants to either raise the RMDs, cap withdrawals, or cap the balance allowed in retirement plans, or perhaps a combination of all the above.
One way to interpret the sketchy details is this proposal may raise the required withdrawal rate on a balance of $3 million to $205,000, or about 7%. Currently the RMD is around $120,000, so hiking the RMD to $205,000 would erode IRAs even faster, subjecting them to income taxes much earlier than currently.