Obama's plan might hit more IRAs than you think

• Proposed budget would cap retirement savings plans at %243 million
• Higher interest rates could lower the cap
• The bigger worry for most people is not having enough retirement savings

The president's proposed budget would cap IRAs and other retirement plans at $3 million, but it could fall below that in future years.

It's not easy to get more than $3 million in a retirement account, which includes IRAs, 401(k) and 403(b) plans. Currently, the cap would affect just 0.03% of retirement accounts, says the Employee Benefit Research Institute.

But there's a catch. The cap is based on the amount you could get from your retirement account if it were converted to an annuity — a stream of guaranteed lifetime payments. The annuity payment in the budget is $205,000 a year.

The annual payments you can get in an annuity fluctuate according to several factors, chief among which is current interest rates, which are near record lows. When interest rates increase, a lump sum generates much higher payments. Put another way, higher rates would cause the $3 million threshold to fall.

Based on interest rates back to 2006, the IRA cap could fall as low as $2.2 million, EBRI says. At that level, the cap could hit nearly 3% of all retirement accounts.

For the vast majority of savers, however, the biggest worry isn't having enough retirement savings, but not enough. Half of all Americans have $25,000 or less in savings, according to Fidelity Investments, and 35% of all working Americans don't have an employee-based retirement plan, such as a pension or a 401(k) plan.

Capping IRA could deter savings without helping reduce the deficit, Ronald O'Hanley, president of Asset Management and Corporate Services at Fidelity Investments, argued at a speech to the U.S. Chamber of Commerce Wednesday. Most retirement programs are tax deferrals, not tax breaks, he argues: Savers pay taxes when they withdraw. "Not only will such a proposal further challenge retirement savings, it will not generate additional revenue," he says.