IRA? 401K? Mandatory UST purchases or loose your tax deduction!

[jtabeb]

http://www.usnews.com/blogs/planning...as-failed.html

Since there are basically no pension plans left save for a few Gov Employees, looks like we ALL will be FORCED to buy US debt soon to hold in our tax deferred retirement accounts.

(well, only forced if you want to keep tax deductibility)

LEAVE, LEAVE NOW!!!

Americans lost over $1 trillion in their 401(k)s in 2008. Ouch! Evidence, says Teresa Ghilarducci, a New School for Social Research economist, that America needs to radically alter how workers save. She proposes eliminating the tax breaks for 401(k)s and replacing them with guaranteed retirement accounts. Under Ghilarducci's plan, outlined in her book When I'm Sixty-Four: The Plot Against Pensions and the Plan to Save Them, all workers who don't have a traditional pension would be required to contribute 2.5 percent of their [COLOR=#005497 ! important][COLOR=#005497 ! important]income[/COLOR][/COLOR]
to a government account with a 2.5 percent employer match. A 3 percent return above inflation would be guaranteed by the government. U.S. News asked Ghilarducci about her controversial [COLOR=#005497 ! important][COLOR=#005497 ! important]retirement [COLOR=#005497 ! important]plans[/COLOR][/COLOR][/COLOR]
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[ThePythonicCow]

Re: IRA? 401K? Mandatory UST purchases or loose your tax deduction!

Since there are basically no pension plans left save for a few Gov Employees, looks like we ALL will be FORCED to buy US debt soon to hold in our tax deferred retirement accounts.

There are two important tax advantages to 401K's and IRA's.

• The first happens when you put new money in. At that point, if you follow the rules and limits and such, you can put in pre-tax dollars.
• The second applies to money already in such an account and the profits it might earn. One can keep such money pre-tax in most circumstances.

I can see them easily enough replacing the tax advantage for new money, so that one could no longer avoid immediately paying taxes on income by putting it into an IRA or 401K that year.

But I think it would be a real mess to try to jerk the rug out from under money already in such accounts. With self-directed IRA's, one can have a wide variety of instruments in the account. For instance in one of my IRA's, I have a mortgage that I loaned to someone else, which isn't due for several years. It would be a bloody mess for both myself and that other person if we had to unravel that debt at this time.

Of course, I doubt Congress will lose much sleep over such problems, unless someone of much higher networth than myself complains of similar problems.

[ThePythonicCow]

Re: IRA? 401K? Mandatory UST purchases or loose your tax deduction!

LEAVE, LEAVE NOW!!!

That's the key question. Will what they do mean that it would have been better to move all ones money out of 401K's and IRA's now, before the event, even if it meant getting hit now with higher bracket income taxes on that money.

I would suggest taking money out (and thereby taking the tax hit) only so far as that withdrawal, plus your other income, didn't put you into the higher tax brackets. That is in fact what I've been doing for two years now.

[jk]

Re: IRA? 401K? Mandatory UST purchases or loose your tax deduction!

the problem with withdrawing funds is not just the immediate tax hit. it's also giving up tax free compounding. cow, are you doing anything special with those withdrawn funds? putting them into instruments or investments you plan to hold especially long term, for instance? i'd be interested in your thought process and decisions about these issues.

[dbarberic]

Re: IRA? 401K? Mandatory UST purchases or loose your tax deduction!

hmmm.... Jim Puplava was predicting mandatory UST purchases in retirement accounts a year or two ago. His thought was that once the foreigners stopped buying Treasuries the government will simply come up with a method to force citizens to support the dollar. He thought it may come in the form of zero coupon bonds.

Looks like someone may be floating a trial balloon.

[Finster]

Re: IRA? 401K? Mandatory UST purchases or loose your tax deduction!

... A 3 percent return above inflation would be guaranteed by the government...

And of course the government will honestly and objectively calculate inflation for you, too...

[ThePythonicCow]

Re: IRA? 401K? Mandatory UST purchases or loose your tax deduction!

the problem with withdrawing funds is not just the immediate tax hit. it's also giving up tax free compounding. cow, are you doing anything special with those withdrawn funds? putting them into instruments or investments you plan to hold especially long term, for instance? i'd be interested in your thought process and decisions about these issues.

The compounding is not tax free, rather it is tax delayed. Depending on the tax bracket one is in now versus the tax bracket (with likely government tax hikes to come) one expects to be in at the alternative future withdrawal time, this can be a net win, loss or draw.

More than just the question of tax sheltering, consider also the question of being able to invest from a self-directed IRA without having to track or give a moments consideration to the tax consequences of ones investment decisions. Investing is more fun that way.

In my case, this doesn't matter much anyway. I radically downsized from Silicon Valley to North Texas, and now live on about 10% of the cash flow I did two years ago. I used the withdrawn IRA money to settle all my accounts from my past life, to fully purchase all my current property, to self-insure as much as legally allowed, and as income along with Social Security.

In other words, my situation and motivations likely don't apply to very many others. Also I don't have to worry much about keeping my present or future income or earnings tax sheltered. I have the pleasure now of filing the short form in a low income bracket.

[lsa420]

Re: IRA? 401K? Mandatory UST purchases or loose your tax deduction!

And of course the government will honestly and objectively calculate inflation for you, too...

Indexed to the cost of health care? I'm in.

[WildspitzE]

Re: IRA? 401K? Mandatory UST purchases or loose your tax deduction!

Indexed to the cost of health care? I'm in.

Isn't the plan that they will also control the cost of health care too? And, how will one index what that is?

[WildspitzE]

Re: IRA? 401K? Mandatory UST purchases or loose your tax deduction!

And of course the government will honestly and objectively calculate inflation for you, too...

That's all we need, more incentives for them to massage the number down. Sweet!

[charliebrown]

Re: IRA? 401K? Mandatory UST purchases or loose your tax deduction!

there is an advantage to tax delay and compounding. Say you have two accounts, both with $1000 to start and have and investment that goes up 10% per year. In scenario 1, you pay 25% tax each year on your gains and in scenario 2 you pay 25% tax after 3 years. Here are the results ...

[QUOTE 1 2
year 0:initial investment 1000 1000
year 1:10% gain 1100 1100
year 1:less 25% tax 1075
year 2:10% gain 1182 1210
year 2:less 25% tax 1155
year 3:10% gain 1271 1331
year 3:less 25% tax 1242 1248[/QUOTE]

Sorry, don't know how to preserve formatting.

The differences grow with higher tax rates and longer terms. Additionally there are all the complications of short vs. long gains, and whether taking a big cap gain in year 3 pushes you into another bracket. Oh its all so confusing. Embrace the VAT Kill the income tax.