February 11, 2014 at 3:41 pm #17671
Hello Everyone. This may be a very naive question but I’m curious at to what the general consensus is regarding the safety of IRAs from confiscation by the (US) government. The internet is awash with rumors of such in order to fund the obvious glaring deficits they possess. Do you think this is a valid fear in light of confiscations of personal pensions by other governments or do you think it is just hype? Unfortunately I am a w2 wage earner and I have limited means to save tax deferred. That being said, I’d rather have taxed money than no money at the end of the day. I am also nowhere near retirement age. I also fear that our taxes at some point may escalate to where it would just be better to pay taxes at these rates and invest in long term investments with minimal or no taxes. Would anyone consider cashing out IRAs and getting into long term investments?
Thank you for your opinions.
MarkFebruary 13, 2014 at 1:32 pm #27336
Have you consider self-directed IRAs? It\’s not an easy setup, but if you have concerns make your IRA difficult to confiscate. While this is definitely NOT a recommendation, I have a self-directed IRA that is funded with a real-estate purchase (raw land). Throws off almost no income, has some maintenance expense and taxes, but my plan is to allow the land to appreciate.
I\’m 50 and I\’ve not stopped funding my IRA, but in light of what our government has done in the last several years, I would put nothing past them.
Good luck.February 13, 2014 at 6:24 pm #27337
Thanks for the reply. I have considered the self directed IRA but was concerned that I may be forced to liquidate the entire investment because of government intervention at a bad time and only get a fraction of the initial money back without being able to take the tax loss. I have opted instead at this time to hopefully get in near the bottom of resource investments ala Rick Rule. If this does as well as they say, I’ll be able to ride it high and then transfer some of those tax sheltered gains into a hopefully depreciated real estate market somewhere else.
It’s very concerning to me that almost daily, we hear about various attempts to steal our hard earned wealth with things like wealth taxes and outright theft such as I saw today on zerohedge in Europe.
Europe Considers Wholesale Savings Confiscation, Enforced Redistribution
Again, thank you for your thoughts
MarkFebruary 18, 2014 at 3:28 pm #27339
Desperate times call for desperate measures.. The US is in that situation and needs money.. One of the last areas of real money are retirement funds. The US has been looking at them for some time. The most recent look was in The State Of The Union address where the president mentioned the MyRA>> a plan for “safe” growth investing in treasuries. My initial fear is that the US will change retirement rules to mandate that a certain percentage of your retirement funds be held in US paper.Pension grabs have happened for all time and present a very attractive pool of money for failing governments. In the last 5 years there have been a number of these sovereign pension grabs.I believe it could happen here and that these type of stealth exchange controls will continue to accelerate.The other item that concerned me about Obamas speech was his threat to use executive actions to further his agenda.Changing rules over night without congressional oversight is my fear.. JohnFebruary 18, 2014 at 8:36 pm #18155
Excellent comments everybody. Thanks. In my opinion, the probability of a DIRECT confiscation of retirement assets by the US government is low. This would be very messy and very risky for the government. Instead, I think the government will use a number of back-door techniques to quietly restrict investment choices and funnel retirement savings into approved asset classes ( ie US debt).
John mentions the president’s new MyRA proposal. Why confiscate accounts if you can instead force people to purchase US debt under the guise of saving for their retirement. The plan is voluntary for now, but I’m willing to bet that it becomes mandatory at some point in the future.
As another example, my wife works for a Fortune 500 company and has been saving through a 401(k) account. The plan only offers a handful of bogus mutual funds, so we have always kept her money safe in a cash equivalent fund. A few years ago, this cash equivalent fund was eliminated, and replaced by something called a ‘Money Market Trust’ which invests in the debt of the US government and its various agencies. The share price of this trust is not guaranteed and will likely lose value if we have another serious financial crisis. I’m quoting from the company web site here: “because this investment option is not a mutual fund registered under the Investment Company Act of 1940, a prospectus is not available and shares are not publicly traded or listed on exchanges.” Translation: We are not even allowed to know what they are doing with our money. Very scary from my perspective. The 401(k) plan is administered by one of the ‘too-big-to-fail’ banks, and my cynical mind can’t help but think that the government is calling the shots. Her money is literally being held hostage.
Mark asked if the group would consider cashing out of IRAs and moving to other investments. I obviously can’t give anyone else advice, but this is the course of action I am pursuing with my IRA. I pull a little bit out every year, pay the taxes and penalties, and then reinvest in other areas. I hope I can drain the account before they change the rules.
Mark’s final point referred to taxes and whether it is better to take the hit now or wait until after you retire. I find it hard to see how tax rates will be lower in the future. Remember, when you pull money out of your IRA it is taxed as ordinary income. Tax rates on ordinary income are progressive, so the more money you make the higher your effective tax rate. I think a lot of successful people with large IRAs are going to be shocked at how much tax they have to pay. If you want to make a large withdrawal in a single year, you will be pushed into the highest brackets. Again, your money is being held hostage.
My preferred solution, at least from a tax perspective? Concentrate on deep value investments that you plan to hold for a long long time. The capital gains on these type of investments are tax deferred until you sell. When you do sell, the capital gains tax rate is 15% (subject to change of course). If I’m not mistaken the capital gains tax rate is NOT progressive so your tax is capped at 15%. If you invest wisely you will likely pay less tax than if you keep your money in an IRA.
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