Lost in the hoopla over the government shutdown, defunding Obamacare, and raising the debt ceiling are some proposals contained in President Obama’s budget that will have a significant impact on retirees, inheritors, and savers. Most of the President’s proposals are aimed at enforcing higher taxes on savers who maximize their retirement plans. This is a way to raise revenue for government entitlement programs, like subsidies for health insurance, Medicare, and Social Security.
Back from last year is his proposal to cap contributions to IRA’s and 401k’s when the balance reaches a level determined by a set formula which is tied to interest rates. The proposal sets the cap at $3.4 million initially. As interest rates rise, the cap will lower. When a saver’s IRA balance hits the cap, he or she will not be allowed to make further contributions to any retirement plan.
This will mostly affect savers who terminate employment and roll large accumulations from profit-sharing plans and lump-sum distributions from defined benefit plans into their IRA’s. It will shut down their ability to save into the future.