Pres. Obama proposes limits on IRAs for the rich

NEW YORK (CNNMoney) -- President Obama on Wednesday announced a plan that would prohibit individuals from reaping tax advantages on IRAs and other tax-preferred retirement accounts when funds exceed $3 million.

By proposing the cap as part of his 2014 budget, Obama 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, the budget estimates.

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.

Many other details are still unknown as well.

Some 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?

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