NEW YORK (CNNMoney)
By proposing the cap as part of its budget, the Obama administration is taking aim at those who stash many millions of dollars in tax-advantaged retirement accounts -- which it argues is more than enough to retire comfortably.
A $3 million balance in a tax-preferred account like an IRA would currently allow a saver to finance an annuity of $205,000 per year in retirement. Removing the tax advantages for funds exceeding that threshold would save the government an estimated $9 billion over a decade, according to a senior administration official.
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Based on the $3 million cap, less than 0.1% of IRA and 401(k) savers would be impacted, according to analysis from the Employee Benefit Research Institute. About 0.03%, or 6,180, of the 20.6 million IRA accounts in EBRI's database had balances exceeding $3 million at the end of 2011, while 0.0041% of 401(k) accounts held $3 million or more by the end of 2012.
If the cap is tied to inflation and federal interest rates, it will fluctuate from year to year -- with a lower cap hitting more people. For example, about 3% of 401(k) accounts would likely be impacted if the threshold were lowered to $2.2 million, EBRI found. And while 2.2% of savers ages 26 to 35 are on track to have retirement balances that exceed $3 million by the time they turn 65, 6% are expected to accrue balances over $2.2 million by that time.
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Many other details are still unknown as well. One of the biggest questions: What will happen to balances that exceed $3 million -- will the money be taxed or will savers be forced to move the excess amount out of that account? And what happens if a balance exceeds $3 million for a short period of time due to market gains, but then falls below the threshold again?
More information should appear in the full text of Obama's budget, which is expected to be released late Wednesday morning. 
First Published: April 10, 2013: 12:24 AM ET
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