Limits on IRA BALANCES?

[champu 1]

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Assuming you retire at 67 with $3MM and assuming a low 3% investment return, and assuming you will live to be 92, you would have to live on $180,000 a year.

I am not a financial adviser, but I did sleep at a Holiday Inn and know how to Google 'retirement calculator'

I'm not a financial advisor either, but I know how to use Excel. If you draw $180K each year from an account starting at $3M that's earning 3%/year you'll drain it in 23 years, not 25. If you adjust up the $180K/year by 1% each year for inflation, you'll drain it in 21 years.

Get yourself a new calculator.

[ryoder 1,397]

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I intend to live off dividends, appreciation, and interest, and if possible, try to be conservative enough to allow the principle to grow to offset inflation.

not me, I'm going to spend it all in the first 6 months and then demand the government take care of me

That just reminded me of this story:

http://newsone.com/2366181/sharon-tirabassi-10-million-lottery-winner-broke/

The idiot had a nice big pot of money she could have put into the most conservative mutual funds, and had a *very* comfortable income for *life*. But instead, the fool blew the whole thing in nine years.

"There are only three things of value: younger women, faster airplanes, and bigger crocodiles" - Arthur Jones.

[wmw999 2,146]

All too common, for just about any windfall. Just look at all those "I have a structured settlement but I need cash NOW" ads on the TV.

It's ignorance, not stupidity some of the time. Woeful, massive ignorance, and not even knowing that they're ignorant. Because, well, some people really do think that money will solve all their problems.

Wendy P.

There is nothing more dangerous than breaking a basic safety rule and getting away with it. It removes fear of the consequences and builds false confidence. (tbrown)

[rehmwa 2]

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some people really do think that money will solve all their problems.

It may not solve bad spending habits, but it would be nice to solve some temporary money problems anyway...

...
Driving is a one dimensional activity - a monkey can do it - being proud of your driving abilities is like being proud of being able to put on pants

[skydiver30960 0]

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All too common, for just about any windfall. Just look at all those "I have a structured settlement but I need cash NOW" ads on the TV.

This. I HATE those commercials. The people taking the "deals" they're offering have no idea how badly they're being screwed.

WRT the OP:

My wife and I sat down a couple weeks ago for a "retirement tune-up" with "our guy" and the number that we were throwing around for the TWO of us, assuming I retire at 63 and she at 60 (I'm a cradle-robber ) was $3M. That assumed average life expectancy for both of us and a 4% annual draw-down on principle.

HOWEVER, this also assumed we'd be getting Social Security benefits. Even as we sat there, we all agreed this was a hopeless assumption, and have made changes to our profile.

Elvisio "we're boned anyhow" Rodriguez

[ryoder 1,397]

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some people really do think that money will solve all their problems.

It may not solve bad spending habits, but it would be nice to solve some temporary money problems anyway...

...and get you two chicks at the same time, man!

"There are only three things of value: younger women, faster airplanes, and bigger crocodiles" - Arthur Jones.

[kelpdiver 2]

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But something to consider, $3 million cash is like having a $70k retirement income for 42.8 years! (Provided at retirement age you take your $3M and deposit it into a checking account that pays 0.00% interest.)

Something else to consider: in 42.8 years at 2.5% annual inflation, that 70k is now worth only 24.5k, and health care costs have been increasing faster than inflation for a very long time.

People - this thread shows a desperate need for better financial education, both for all of you, and for the Obama Administration geniuses. Bear in mind that they have yet to release a "plan" just a really stupid idea that is unworkable, never mind undermines the goal of encouraging retirement savings. In fact, some tin foil types believe that it's part of a move to kill the 401k and private pensions in place of a government one.

Just a few facts:
It is quite achievable for a middle income (California incomes) to contribute the max per year, add the company match, do an IRA on the side, and effectively contribute over 25k/year. They can easily pass the 3M threshold. Those who say we can trust this will be indexed for inflation...we have so many counter examples in tax policy that says otherwise (AMT, IRA contribution limits).

The Obama administration says that $3M funds a 205k annuity. But that flies in the face of the long established 4% rule, which would direct you to have 5.125M balance at year 1 of retirement. Moreover, many feel the 4% is archaic, a bit too simplistic and not guaranteed to last your lifetime. And with interest rates where they are right now, annuities are not paying as well as they do historically. It would be unsound to put 100% of your money into annuities anyway. 25% may be a prudent insurance policy.

Implementation is problematic. People in their 50s/60s in the go go 90s saw their balances ballon like a Saturn rocket, and then blow up like an Atlas rocket, and then rise like a phoenix if they could afford to wait. Their balance might have gone past 4, then below 2, and then up to 4 again. Only a fool would stop saving once they see a projected 3M balance. You want to save enough so that you can tolerate a 2001 or a 2008 in the years just before retirement. The only workable approach I see is that if on Dec 31st your eligible accounts exceed the MaxValue, then you cannot contribute to an IRA or 401k in the subsequent year. If it drops below again, then you can again for that next year. That's still unfair, and hard on payroll to immediately react for the first paycheck in January. The other consequence is people will look for other ways to deposit (hide) their money.

People who save 3M (or 100) are not dodging taxes. You pay on withdraw and at 70 1/2 years, RMD (required minimum distributions) kick in and they can cause quite a tax hit on high savers. Many take excess distributions in their early years to mitigate this. If the person dies, the recipients are still paying taxes on the distributions.

Nothing in these Obama trial balloons has discussed roth versus traditional. $3M in roth accounts is worth a lot more than 3M in traditional. One logical result of this would be that people would shift their contributions to Roth accounts. This increases tax revenues now at a cost later. (This of course presumes that people trust the Feds not to renege and try to tax these accounts again later)

At the heart of it, you have the ask the question "Why." If this is about Romney 9 figure IRAs, then why set the bar at 3? And if you're only getting 9B out of it somehow (even though the plan still doesn't exist), why piss off millions of people who are saving, not trusting Social Security to do its job? It feels like a lame trial balloon...like the ones Clinton did in his first year in office.

[DiverMike 5]

I assumed the principle would have been drawn down to zero as well as receiving Social Security on top of the $3mm.

I can't vouch for the calculator, I just picked one from Google. It was quite likely wrong. I guess my point is most people won't live past 92, and most people would be happy on $180,000 a year. I, for one, don't plan on leaving money for my kids, nor do I expect any from my parents.

For the same reason I jump off a perfectly good diving board.

[quade 3]

This is a 0.1% problem at best.

quade -
The World's Most Boring Skydiver

[ryoder 1,397]

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This is a 0.1% problem at best.

So tell us how much you think a person needs to retire.

"There are only three things of value: younger women, faster airplanes, and bigger crocodiles" - Arthur Jones.

[Remster 24]

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This is a 0.1% problem at best.

So tell us how much you think a person needs to retire.

I would say it's a 5% to maybe 10% problem.

Remster

[DiverMike 5]

Would Roth IRA's be included in the $3MM cap given the income has already been taxed? I guess I should be asking Obama instead of you.

For the same reason I jump off a perfectly good diving board.

[DrewEckhardt 0]

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Proposed limits on IRA balances

And here we go. Not limits on IRA contributions (which we already have) but limits on balances.

I believe this is just another way the government is trying to punish people who save versus rewarding people who spend.

Yup.

$3M only allows a safe draw of $120K/year.

While that sounds like a lot for young people living in fly-over country, in expensive places that won't cover a year's stay in the average nursing home for one person and a couple with that sort of income would qualify for government moderate income housing programs.

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What do you think?

The average senate seat costs $1.7M per year to hold ($10.5M campaign cost, 6 year term) but pays only $174K. That arithmetic works because some one else pays to put politicians in office.

Politicians need to placate the people voting for them without offending the PACs and 0.4% (those making campaign contributions big enough to require reporting, with the bulk of such contributions for many candidates being at the $10,000 per couple statutory limit for primary and general elections) of natural people paying to elect them.

A big bite out of the tax dollars funneled to corporatist interests ($500B annually goes directly to contractors, and hundreds of billions reach those interests indirectly through things like Medicare Part D) would help the budget but offend those people.

Making it harder on the moderately well off (actual wealthy people don't need IRAs because they don't need to work) placates the voters without hurting the campaign donors.

[quade 3]

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This is a 0.1% problem at best.

So tell us how much you think a person needs to retire.

Again, this is NOT the only retirement money you're allowed to have. Simply the amount in one particular case that is tax deferred.

Wanna save a billion dollars? Go for it, just don't expect all of it to be tax deferred.

quade -
The World's Most Boring Skydiver

[kelpdiver 2]

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This is a 0.1% problem at best.

You are not remotely qualified to make such a statement. You don't even understand the tax policy around IRAs, nor have answers to anything else I wrote.

No, the 5-10% figure put out by another is in the ballpark for today. The AMT tax was created for 155 households and now affects millions. Pretty much the 0.1% lie and the 5-10% reality we're looking at here.

[DrewEckhardt 0]

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It would be very difficult for Joe Sixpack to come up with a $3MM balance in a 401K.

It's easy.

You put in the same $17.5K/year in current dollars and break $3M after 37 years assuming you get the same 7% real returns the S&P 500 has averaged since 1950 with dividends re-invested.

You get to that annual contribution by pretending that raises early in your career don't exist until you get to that point.

Living in a one-bedroom apartment and driving a car older than you makes you a bad American for failing to embrace consumerism, but does make a comfortable retirement (where you relax, travel, and do whatever) much more likely.

I was a little slow starting (upgraded from a rented one bedroom apartment to owning a town home with a room mate to help with expenses and bought a 3 year old car before maxing out my 401k deposits) so building $3M in wealth via 401k contributions will take me until I'm 68 assuming historic returns continue and I don't work for another company which makes matching contributions.

It's even easier when you just focus on the number and ignore inflation. Assuming the Federal Reserve matches the last 37 years you'd only need to accumulate $1.3M in current dollars to arrive at the same nominal balance.

[DrewEckhardt 0]

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It is quite achievable for a middle income (California incomes) to contribute the max per year, add the company match, do an IRA on the side, and effectively contribute over 25k/year. They can easily pass the 3M threshold. Those who say we can trust this will be indexed for inflation...we have so many counter examples in tax policy that says otherwise (AMT, IRA contribution limits).

The basic income tax introduced in 1913 is the best example.

In 1913 the exemption for single people was $3000 ($69,782 in 2013 dollars) and $4000 ($93,042 in 2013 dollars) for married couples.

The first $20,000 beyond the exemption ($465,212 in 2013 dollars) was taxed at 1%.

Earnings over $500,000 a year ($11,630,303 in 2013 dollars) were taxed at the top rate of 7%.

Compare and contrast with the $10K/$20K exemption for single people and married couples (standard deduction plus personal exemptions), 10% low tax bracket, 39.6% top bracket for earned income (not including both parts of medicare and the surcharge), and 23.8% capital gains rate for "the wealthy".

[kelpdiver 2]

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I assumed the principle would have been drawn down to zero as well as receiving Social Security on top of the $3mm.

I can't vouch for the calculator, I just picked one from Google. It was quite likely wrong. I guess my point is most people won't live past 92, and most people would be happy on $180,000 a year. I, for one, don't plan on leaving money for my kids, nor do I expect any from my parents.

The problem with drawing down to 0 is you don't know the end date. We do know a few things - if you are alive at 65, you have pretty good chances to make it to late 80s or 90s. If you're born today, you might easily live to 100. And in 27 years, inflation will eat that 180k down. And any bad investment losses (1/3rd or more of your assets will still be volatile ones) are hard to make up for when you're on a 20 year draw down to zero. If you're fortunate enough (or conservative on draw down) to just take out of income streams, then you don't worry about market dips.

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Would Roth IRA's be included in the $3MM cap given the income has already been taxed? I guess I should be asking Obama instead of you.

No one knows. This isn't an actual proposal, just a brain fart. A tragically funny one - he proposed a "potential" 9B tax increase to match with a 95B proposed budget increase.

[OHCHUTE 0]

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What do you think?

IRAs were set up to be retirement accounts (says so right in the name), not unlimited tax shelters.

When I get to the point in my life where I've amassed over 3 MILLION dollars in an IRA, I guess I'll worry about what other tax shelters I can find, but honestly I think most of us aren't ever going to have to worry about that.

It's deferred taxation. You eventually must pay tax on the money.

[CygnusX-1 42]

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And the jets. You can't have a good speech without mentioning the jets.

Or the patriots for that matter.

[champu 1]

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This is a 0.1% problem at best.

You are not remotely qualified to make such a statement.

To be fair, he did say "...at best" which is a qualitative adjective, so if his goal is to affect "the rich" and not affect "the not rich" then he is correct in saying that "at best, this is a problem for 0.1% of people" i.e. "this will affect at least 0.1% of people."

So his statement is true, at best.