President Obama’s latest plan to raise tax revenue from wealthy individuals would pinch tax-favored retirement accounts of some private-equity executives and self-employed professionals by capping them at $3 million.
The proposal, to be detailed Wednesday in Obama’s budget, would raise $9 billion for the government over the next decade, according to the White House.
The issue of multimillion-dollar individual retirement accounts drew attention last year when Republican presidential nominee Mitt Romney disclosed that his IRA had a maximum value exceeding $100 million.
It’s not just private-equity executives who would face higher taxes under Obama’s proposal. Self-employed business owners, such as doctors and lawyers, can contribute up to $51,000 a year to their IRAs, making it relatively easy for them to hit $3 million over a career without unusual investment strategies, said Bobbi Bierhals, a partner at McDermott Will & Emery in Chicago who specializes in estate planning.
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Obama, who persuaded Congress to raise top marginal tax rates on ordinary income, capital gains, dividends and estates during his first term, is seeking more revenue from some of the same sources. The budget will include other revenue-raising proposals paired with spending cuts in a renewed pitch to congressional Republicans for a so-called grand bargain to trim the deficit.
The typical household approaching retirement had $120,000 in combined 401(k) and individual retirement account savings in 2010, according to a July report by the Center for Retirement Research at Boston College.
The retirement-savings cap would apply to the total of an individual’s tax-favored accounts.