No. of Recommendations: 6
I don't know what level of gazillionair I want to be: $48 million or $92 million or $132 million.

Imagine...all that from simply putting a grand a month into the S&P 500 over a few decades. No wonder Owebama wants to limit Americans' tax free accounts to $3 million. (He has always hated math.)

Owebama Budget to Take Aim at Wealthy IRAs

A proposal which on the face of it I heartily endorse. The caveat being they haven't said specifically how the cap would work. Presumably, you would have to remove money from the account down to the cap limit. If that's the case, it sounds very reasonable and common sense and certainly in keeping with the aims of an IRA.

The stated purpose of the IRA and 401(k) is to provide middle and lower class earners a chance to save for retirement. The way it works is the government provides a tax break (this is, a subsidy) to encourage these groups to save. The reason why there are contribution limits is these programs are not designed to subsidize high income taxpayers. High earners can use them, but they specifically designed to limit high income earners from sheltering money. This policy seems fair and reasonable to me. I presume this sounds reasonable to most people, because these rules have been basically the same since inception.

A tax break is identical to a subsidy. One party has more money, the other party has less. If you subsidize one group, someone else has to pay higher taxes in some form, or get fewer services or something. I don't see any national interest in subsidizing retirements for rich people. By definition they are doing fine, they don't need extra help from someone else.

Our current example would never work for an IRA. There is a $5500 per year contribution limit. So there is no way you make an initial deposit of $10,000 and then contribute $12,000. Which brings me to the next point. For most of the history of the IRA, the contribution limit has been under $2000/year. There's virtually no way an average investor gets to $3,000,000 without either being extraordinarily lucky or more much likely 2) gaming the system.

I do agree with subsidies to help middle and lower class people save for retirement. I don't agree with subsidies for people who game the system. This board shouldn't be a political board (there are plenty of those already) and note there's no politics in my post. Simply a discussion of the philosophy behind tax advantaged retirement accounts and why this proposal makes sense in regards to why retirement accounts were created in the first place.
Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.