(Bloomberg) President Barack Obama’s budget proposal would cap multimillion-dollar tax-favored retirement accounts like the one held by Mitt Romney, his Republican rival in 2012.
Obama’s budget plan, to be unveiled April 10, would prohibit taxpayers from accumulating more than $3 million in an individual retirement account. That proposal would generate $9 billion in revenue for the Treasury over the next decade, according to a White House statement released today.
“Under current rules, some wealthy individuals are able to accumulate many millions of dollars in these accounts, substantially more than is needed to fund reasonable levels of retirement saving,” the statement said.
The most prominent taxpayer with a multimillion-dollar IRA is Romney, the 2012 Republican nominee and co-founder of Bain Capital LLC. Romney disclosed in public filings during the presidential campaign that his retirement account held between $18.1 million and $87.4 million. At one point, the maximum exceeded $100 million.
IRAs have evolved from a retirement-planning technique into an estate-planning tool for some wealthy families because tax laws allow the accounts to be passed on to heirs, said Ed Slott, an IRA specialist and CPA based in Rockville Centre, New York.
“Over the last election it hit a critical mass when a lot of people found out that Romney had $100 million in his IRA,” Slott said. “People thought, how on earth did that happen? I think that was the tipping point.”
The Romney campaign didn’t explain how he amassed that much money in the IRA when contribution limits are much lower. Most taxpayers can contribute a maximum of $5,500 for 2013.
One possibility is that Romney included Bain investments valued at close to nothing that later grew exponentially. The value would increase tax-free in the retirement account and would be subject to taxation at ordinary income tax rates when taken out.
Democratic lawmakers, including Representatives Sander Levin of Michigan and George Miller of California, called on the Treasury Department to act.
The administration’s statement didn’t explain in detail how the proposal would work. The cap would apply to the total of all tax-favored retirement accounts.
Slott said the proposal, which wouldn’t apply to most taxpayers, would be difficult to implement.