White House Budget Would Limit Retirement Savings

The President’s budget proposal has caused great concern among retirement advisers and individuals. The budget the White House has put forth recommends strict new IRA limits that would dictate how much individuals can save for their own retirement. President Obama has proposed that individual retirement accounts be limited to a cap of $3 million, in a move that would affect how many Americans secure their futures.

The proposed IRA cap would hit the self-employed particularly hard. Many individuals in the U.S. have no corporate pension or 401(k) plan to see them through their golden years, and are responsible for saving all of their retirement funds independently. More Americans are self-employed than is commonly realized; for example, physicians who work at hospitals are often independent contractors rather than hospital employees. Another group who would be subject to the $3 million IRA limits are those deemed “private-equity” executives, a term which has not been clearly defined in the President’s budget proposal. While $3 million may sound like a lot to the average worker, retirement experts recommend accumulating a nest egg that totals at least 12 times a person’s average annual salary to ensure they are able to retire comfortably. That figure does not take into account major health crises or a longer-than-average lifespan. For self-employed individuals who do not have a corporate pension to supplement their personal contributions to retirement savings accounts, the proposed IRA limits could negatively impact their future quality of life.

Even people whose retirement savings will not be directly impacted by the President’s budget proposal should take note of what is happening in Washington. As Carl Fischer of CamaPlan points out, government intervention in personal finances is a slippery slope: “With the confiscation of 40% of bank funds from those the government deemed “wealthy” in Cypress, it appears government officials can easily modify rules to sustain the type of spending spree demonstrated in the presidential budget.” Mr. Fischer adds that, “It seems CamaPlan accounts and alternative investments are better positioned, with some capability and latitude, to withstand government intervention and redistribution than cash, stocks and bonds.” Others within the retirement savings profession are determined to fight the IRA cap. Brian Graff, Executive Director of the American Society of Pension Professionals and Actuaries (ASPPA), has promised that ASPPA will “vigorously oppose” IRA limits. He warned that the President’s budget “will leave workers with a greatly diminished plan or without any plan at all” because capping what business owners can save will reduce their enthusiasm for maintaining any sort of retirement plans, including those open to their employees.