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President’s proposed IRA cap not just for rich

“Max out your retirement plans every year” has long been standard advice I’ve given to working adults who want to secure a reliable income when they retire. Individual Retirement Accounts IRAs, along with 401k, 403b, and profit sharing plans offered by some employers, are among the most accessible ways for middle-class workers to provide for retirement and build wealth.

If a proposal in President Obama’s budget plan is approved by Congress, however, retirement plans may no longer be the first and best stop along the road to financial independence.

The proposal would limit a person’s total balance in all tax-advantaged retirement plans to the amount it would cost to purchase an immediate annuity paying $205,000 a year. This appears to not be indexed for inflation. The articles I’ve read and my own calculations suggest this would mean capping retirement accounts at around $3 million.

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