don't worry, your retirement is safe

secondrepublic

I've been wondering for a long time how the government would try to get its hands on the trillions of dollars sitting in individual retirement accounts, 401(k) plans, etc. We learned the answer on Friday afternoon -- Obama proposes to "ban" retirement accounts with balances over $3 million. Obama's argument is that no one "needs" a retirement account with over $3 million; therefore, the government should be able to confiscate it. The government has always imposed limits on how much people can contribute into these accounts every year -- usually for IRAs, the limit is only $5,500/year, and for 401(k) plans it's $17,500/year. Some people have invested their money brilliantly over many years, however, and have grown a nice nest egg. Now the gubmint wants it.

For Obama to propose it means it's well in the mainstream of Democratic party. The $3 million cutoff is just the opening shot. The income tax when first passed 100 years ago also applied only to very high earners. Expect future proposals from the government seeking to tap Roths and other plans.

DoubleEagle59

Just the start, if you ask me.

With all the billions of retirement dollars coming due from the nest egg of retiring babyboomers, it's only common sense that the government will do all it can to grab as much of it as possible.

LowBudget

scary thought that we may only be years away from a Cyprus situation

JohnnyCache

You just have to love these guys!!

Oh and over in Europe, no no, cyprus isn't a template for future "bail in's" ..... Template



I love this excerpt from ZH commentary relating to the first story....



<< <i>Why thank you Mr. President for telling the people what you consider "reasonable." The rich (arbitrarily chosen as those who have over $1 million in assets... or $500,000... or $50,000 - who knows, it's "arbitrary") are now fair game and all those who recently received an Obama phone would be legally excused if they were to accidentally eat them. Because all is fair in hate and class warfare. >>

Same story as OP ZH site

secondrepublic

Cyprus and this grab of retirement plan money by Obama is just going to push people out of the "official" banking and retirement plan world, and into hard assets like gold.

jmski52

Just for the record, Sinclair has never advised this before:

Get out of the system now.

Ann Barnhardt advised it months ago, after MF Global and Peregrine Financial. I think it is prudent to stay out of their way.

piecesofme

That's nice advice and all jmski, but how does one get out of a 401k while still employed that is tied with the 401k? One can stop contributing to it, but how does one "cash it out" and take all the penalties, when still working. Is the person supposed to quit their current employment that is tied to their nest egg?

vpr

I see your point of view and I have to agree that it is ridiculous that folks who are responsible are punished by the government. But one thing that also bothers me very much is how the rich take advantage of tax loopholes like this one. I don't think it's fair that someone should be able to put company stock when it is in it's infant stages into a tax sheltered retirement account and not have to pay taxes until withdrawal and accrue millions of dollars tax-free. Some of these guys have tens of millions of dollars stashed away in retirement accounts and I have to pay higher taxes because they're gaming the system.

A middle class person always gets screwed, no matter what. The poor have welfare and the rich have tax breaks and I pay a ridiculous tax rate. I say, get rid of all tax breaks and all tax shelters including breaks for buying houses, making babies, dependents and saving for retirement or paying for education and put a flat tax rate or a flat dollar tax amount on everyone and make it really fair! That way no one will be able to game the system.

On a side note, this only shows that no paper money accounts are really safe. Tax rates will definitely rise and I'm sure they will blame speculators in PMs for a serious devaluation of the dollar and pass some ridiculous bill to tax PM transactions at some outrageous rate. And then a lot of the trading will shift to cash only deals. Those who own the physical product will be much better off.

secondrepublic

vpr, you could have invested your retirement money in the same thing that Mitt Romney invested his in. or you could have bought Apple in 1997 at eight bucks a share. etc., etc. there are countless of thousands of stocks and other investments out there. most people play it safe and buy mutual funds and therefore never make a mega-return (and also never face a total wipeout to zero - which is the flip side of these mega-wins). there's nothing remotely unfair about people taking chances and winning big. the system already makes high-income people pay way more in taxes -- both percentage-wise and overall -- than lower income people. The top 10% of income earners pay 71% of all income taxes collected by the gubmit. Obama's idea is just another socialist attempt at grabbing money from those who have succeeded. It's disgusting.

tincup

jmski52, that is a very sobering article. Definitely being very straight forward; and in my opinion, is reflecting the fear that many have.

All one has to do is look at each step that has been taken during the past several years to see the handwriting on the wall. If one chooses to ignore it, then they best be prepared to take the consequences.

vpr

<< <i>vpr, you could have invested your retirement money in the same thing that Mitt Romney invested his in. or you could have bought Apple in 1997 at eight bucks a share. etc., etc. there are countless of thousands of stocks and other investments out there. most people play it safe and buy mutual funds and therefore never make a mega-return (and also never face a total wipeout to zero - which is the flip side of these mega-wins). there's nothing remotely unfair about people taking chances and winning big. the system already makes high-income people pay way more in taxes -- both percentage-wise and overall -- than lower income people. The top 10% of income earners pay 71% of all income taxes collected by the gubmit. Obama's idea is just another socialist attempt at grabbing money from those who have succeeded. It's disgusting. >>



And, that's fine. If folks make it rich that's great and they should only pay what everyone else pays. I'm all for a flat dollar amount tax for everyone or at least a flat percentage. But in this case, it's not fair that they get to exploit a loophole in the tax systems where their millions are not taxed at all because they're in a retirement account. I certainly don't think the higher tax rates for rich people is fair. They worked hard to get where they are and should not be punished. But no one should be allowed to game the system and in this case, that's exactly what they're doing. If the tax code didn't have a retirement account deduction, we wouldn't have this issue to begin with.

tincup

vpr, you also need to remember that those in power in Washington are the ones who helped set up the system (and loopholes) for their benefit also. And they make much use of it. Most of them are millionaires. Just another example of how things are set up for those in power, while the rest of us tend to not benefit from it.

secondrepublic

Not sure I understand your point. Under current rules, all the money taken out of Individual Retirement Accounts (IRAs) or 401(k)s is already subject to taxation at normal income tax rates (same as ordinary income). Maybe these guys got a small tax break on the money they put in, but they will have to pay tax on the entire value of the account when they withdraw it. There's no tax avoidance here. What's going on here is an attempt by government to change the rules and just plain confiscate whatever people have above $3 million in value in these accounts. That's socialism, pure and simple.

tincup

<< <i>Not sure I understand your point. Under current rules, all the money taken out of Individual Retirement Accounts (IRAs) or 401(k)s is already subject to taxation at normal income tax rates (same as ordinary income). Maybe these guys got a small tax break on the money they put in, but they will have to pay tax on the entire value of the account when they withdraw it. There's no tax avoidance here. What's going on here is an attempt by government to change the rules and just plain confiscate whatever people have above $3 million in value in these accounts. That's socialism, pure and simple. >>





Agreed.

LowBudget

there's always been the argument that one should have to serve in the military before they decide to send others into battle. Maybe in the case now, politicians and future Presidents need to have actually had a REAL JOB before spending others' money.

KUCH

<< <i>Just for the record, Sinclair has never advised this before:

Get out of the system now.

Ann Barnhardt advised it months ago, after MF Global and Peregrine Financial. I think it is prudent to stay out of their way. >>



I also join the list, Get out of the System. How many times have I said it here? We all know it's going to be painful, but everything I've read suggests the longer we wait for the flushing, the worse the fall. If we get out of the system, changes could occur according to our terms, such as free markets, smaller government etc.

vpr

Not quite. There still are significant tax benefits. They can liquidate their holdings, move into other assets etc and never have to pay taxes until retirement. And if someone were to put 5K into a Roth IRA when their business is only worth 10K (no value is put on human capital) and then it grows to $1 billion, they never have to pay taxes on the 100s of millions in capital gains.

piecesofme

That's nice advice and all jmski, but how does one get out of a 401k while still employed that is tied with the 401k? One can stop contributing to it, but how does one "cash it out" and take all the penalties, when still working. Is the person supposed to quit their current employment that is tied to their nest egg?

So there's no way to do this other than quitting your job huh? No thanks to the "get out of the system" conspiracy theory then. I can't quit my job to get at my 401k because of what someone "thinks" might happen.

secondrepublic

Roth IRAs are different story -- it's post-tax money that's put in -- and there are limits on who can put money in a Roth. Someone making over $125,000 a year cannot even put money in a Roth. And Roth IRAs didn't even exist until 1997. But regardless, I'm sure Roth IRAs are going to be targeted by the government too. It would only be "fair"

jmski52

That's nice advice and all jmski, but how does one get out of a 401k while still employed that is tied with the 401k? One can stop contributing to it, but how does one "cash it out" and take all the penalties, when still working. Is the person supposed to quit their current employment that is tied to their nest egg?

So there's no way to do this other than quitting your job huh? No thanks to the "get out of the system" conspiracy theory then. I can't quit my job to get at my 401k because of what someone "thinks" might happen.

Are you trying to say that you can't cash out your own 401K at work? I think that is incorrect. You might forfeit all non-vested company matching funds, and you would have to pay a 10% penalty, but I'd be very surprised to hear that anyone would have to resign first in order to withdraw a company-sponsored 401K.

There's nothing conspiratorial and there's no theory involved here. We're all big boys, and if you chose to keep your money in the system you live with those consequences, just as I live with the consequences if silver goes to $6.00.

piecesofme

Are you trying to say that you can't cash out your own 401K at work? I think that is incorrect. You might forfeit all non-vested company matching funds, and you would have to pay a 10% penalty, but I'd be very surprised to hear that anyone would have to resign first in order to withdraw a company-sponsored 401K.

And you're saying this is an option? I am fully vested so I suppose I wouldn't have to lose out on the company matched funding I've realized, but giving up 10% and pay the taxes (did you forget about that when cashing out a 401k)...another 25-30% most likely? That's an option? Give up up to 40% of my 401k because some analyst is telling me to? Like I said, thanks for the warning, but no thanks on the scare tactic (by the analyst).

derryb

While I don't agree that retirement confiscation is anywhere near in our future, younger contributors to an IRA/401K may want to consider what the dollar will probably be worth when they finally cash out. Does no good to have turned that dollar into two dollars if a loaf of bread then costs $5. Might want to consider alternatives that better protect the value of dollars that are currently going into an IRA. In my view the only contributions that make sense to an IRA are ones that can be recovered via qualified withdrawal in the next five years or ones that can gain value in the account faster than the dollar loses value. Projected future purchasing power of money is an important factor to consider. All that can really be used to predict that power are past performance and current direction of monetary policy.

When given the choice one should normally choose the Roth IRA (contributions taxed, gains and withdrawals not taxed) over the regular IRA (contributions not taxed, withdrawals taxed). Conversion of an existing regular IRA to a Roth IRA should also be considered provided the account holder can afford the income taxes on the amount converted. I believe it safe to assume that income taxes will not go down in the future and will most likely rise. In this case it is better to pay taxes on contributions now with the Roth (and the conversion) than to postpone them now and pay them years down the road as is done with a regular IRA or 401K. Retirement funds will be taxed, it is just a question of when they are subject to taxes - when the money goes in or when it comes out. Roth gains are currently tax free income. Delaying the tax bill with a regular IRA or 401K contribution may not be a good idea after all if taxes do in fact rise.

Jinx86

I'm thinking of owning more farmland back home, as I see it being a good value right now and only going up. Also as a form of income now and in retirement. Why not hold something that's going up in value and paying out. I already own a sizable amount but can seeing how prices keep going up I may have to purchase land now while its still affordable. My grandmother lives off the income from her farmland which is nearly 45K a year, she hardly spends any of it. She grew up during the 30's and told me of many of the hardships they lived through, but having the farm is what made our family what it is.

Took a job with a wholesale bullion/coin dealer. Great pay and benefits. Ill have to ask if he'll match my 3% but in bullion....

jmski52

And you're saying this is an option? I am fully vested so I suppose I wouldn't have to lose out on the company matched funding I've realized, but giving up 10% and pay the taxes (did you forget about that when cashing out a 401k)...another 25-30% most likely? That's an option? Give up up to 40% of my 401k because some analyst is telling me to? Like I said, thanks for the warning, but no thanks on the scare tactic (by the analyst).

I don't care too much what an analyst might say. And yes indeed, you would have to pay taxes, and a 10% penalty, and you would probably forfeit any matching funds that haven't been vested for longer than 5 years. That much is true.

However, you are going to pay taxes on any gains when you take it out of the retirement account. The ENTIRE premise when tax-deferred accounts were being pumped in the late 1970s was that you would presumably be paying a lower tax rate on earnings after you retired. This ASSUMED that the tax structure would remain static all those years.

Those gains are still taxable no matter when you use them, and the tax rate is definitely going UP. And the penalty? Yeah, 10% is a deterrent and that's exactly why it was put into place - to deter people from demanding control over their own funds. It's a pretty good deterrent, in fact. Most people are conditioned to follow the conventional model and to believe that the powers that be are smarter than they really are, and that the powers that be have people's best interest in mind. THEY DON'T.

I'm not saying that anyone should yank their money out of their tax-deferred retirement accounts, pay the penalty & taxes, and then put it into gold & silver. The important thing to consider in my opinion, is that gold & silver could take a dive right after you bought it with money that was previously in stocks. You'd feel really bad about that. That's a personal decision that depends on the many factors that might be going on in someone's own life. I made that decision in 2006, and I have no regrets whatsoever. For one thing, my money is 100% more secure under my own management & control.

<end of lecture/rant>.

piecesofme

end of lecture/rant

lol...no offense taken jmski, and I hope I didn't come off as being brash. It was a discussion and now that you've explained in detail more of what your stance is, I actully agree with you alot more. Sometimes we (all of us, myself included) post a link to something here that may, or not be our own personal view and it gets misinterpreted.
I'm glad you took the time to state your stance jmski, takes a little more effort than posting a link and a one-liner, but well worth the time doing so in most cases.

roadrunner

There will be new restrictions, requirements, taxes, etc. placed on Roths, bullion, etc. The rules will be changed to leave no place to hide for 99% of people.
So I can see why JS is saying to get out of the system. It might even come down to voiding all the current style of FRNs and the Treasury printing a fresh
batch going forward. This will basically kill the underground cash/barter market.

jmski52

There will be new restrictions, requirements, taxes, etc. placed on Roths, bullion, etc. The rules will be changed to leave no place to hide for 99% of people.
So I can see why JS is saying to get out of the system. It might even come down to voiding all the current style of FRNs and the Treasury printing a fresh
batch going forward. This will basically kill the underground cash/barter market.

That is actually Part II of my <lecture/rant> and roadrunner says it so succinctly and so well. The plan is to control as much as possible.

What people should be concerned about is that cash is being more and more restricted for the general public, but very few bankers have been investigated for bank fraud when the fraud ran into the hundreds of billions at most tbtf banks.

It is quite alarming that government can require I.D. checks and holding periods for gold & silver or gun transactions - but not for citizenship, voting or food stamps. On one hand, we have creeping infringements on free enterprise and 2nd Amendment Rights, while simultaneously the same governments are actively promoting illegal immigration, voting fraud and welfare fraud. Simple facts.

I expect that when the 2,500+ pages of obamacare and the 2,500+ pages of Dodd Frank have all promulgated their 20,000+ pages of new regulations, there will be so many people who have become criminals and "out of compliance" that we will see a much larger new underclass being formed. What's ironic is that most of the people who will fall into that classification won't even realize it until they go in for medical issues, have their job eliminated from under them, or have an encounter with the legal system.

In totality, things are really not going well.

Mesquite

I’m basically talking out loud here. Any comments on things I have not considered are welcome.

Assume for the moment that none of this will come to pass. No worries. However the evidence that it may come to pass is mounting. So, what is one to do? Recent writings of both Jim Sinclair and Jim Rogers suggest that you rearrange your finances to have as few people between you and your money – get out of the system to the extent that you can. For most, that is easier said than done. For those who are invested in 401Ks. Generally speaking one is allowed to borrow up to one-half of their value to a max of $50K. This may well be 401K-specific. That, it seems, to me allows for the purchase of a sizable chunk of PM at today’s prices and gets a substantial portion of a 401k out of the system. There is no credit check on 401K loans because you are loaning the money to yourself. Now, you do need to begin paying it back in the pay period after the loan is made. There will be interest paid as well. But, you are paying yourself back with interest. If you’re in the habit of socking money away on a monthly basis for future PM purchases anyway, what’s the big deal with taking the loan now, making a purchase now and paying for that over time? I understand that it puts you in the position of having to pay the loan back if you lose your job – but you will be able to do that from your PMs. Do you see any real downside to this for the individual? And don’t tell me … but what if the price of PMs drops below todays levels? If we are talking about the choice between owning PMs or Treasuries, what do you care about a transient drop in PM prices?

KUCH

In totality, things are really not going well.



We just have to do what we can.

-------------------------

derryb

<< <i>I’m basically talking out loud here. Any comments on things I have not considered are welcome.

Assume for the moment that none of this will come to pass. No worries. However the evidence that it may come to pass is mounting. So, what is one to do? Recent writings of both Jim Sinclair and Jim Rogers suggest that you rearrange your finances to have as few people between you and your money – get out of the system to the extent that you can. For most, that is easier said than done. For those who are invested in 401Ks. Generally speaking one is allowed to borrow up to one-half of their value to a max of $50K. This may well be 401K-specific. That, it seems, to me allows for the purchase of a sizable chunk of PM at today’s prices and gets a substantial portion of a 401k out of the system. There is no credit check on 401K loans because you are loaning the money to yourself. Now, you do need to begin paying it back in the pay period after the loan is made. There will be interest paid as well. But, you are paying yourself back with interest. If you’re in the habit of socking money away on a monthly basis for future PM purchases anyway, what’s the big deal with taking the loan now, making a purchase now and paying for that over time? I understand that it puts you in the position of having to pay the loan back if you lose your job – but you will be able to do that from your PMs. Do you see any real downside to this for the individual? And don’t tell me … but what if the price of PMs drops below todays levels? If we are talking about the choice between owning PMs or Treasuries, what do you care about a transient drop in PM prices? >>


Investing with borrowed money is rarely a good idea. The fact that you are borrowing from yourself is not a good exception to the rule.

derryb

Finally a flow chart to guide you through figuring out your tax-deductible 2012 IRA contribution!

tneig

You can work on re-allocating what your 401k is invested in, such as a choice of mutual funds, etf, or even a PM account, move to roth, etc. Sounds safer.
There seems to be too many variables that could go bad on this deal.




<< <i>I’m basically talking out loud here. Any comments on things I have not considered are welcome.

Assume for the moment that none of this will come to pass. No worries. However the evidence that it may come to pass is mounting. So, what is one to do? Recent writings of both Jim Sinclair and Jim Rogers suggest that you rearrange your finances to have as few people between you and your money – get out of the system to the extent that you can. For most, that is easier said than done. For those who are invested in 401Ks. Generally speaking one is allowed to borrow up to one-half of their value to a max of $50K. This may well be 401K-specific. That, it seems, to me allows for the purchase of a sizable chunk of PM at today’s prices and gets a substantial portion of a 401k out of the system. There is no credit check on 401K loans because you are loaning the money to yourself. Now, you do need to begin paying it back in the pay period after the loan is made. There will be interest paid as well. But, you are paying yourself back with interest. If you’re in the habit of socking money away on a monthly basis for future PM purchases anyway, what’s the big deal with taking the loan now, making a purchase now and paying for that over time? I understand that it puts you in the position of having to pay the loan back if you lose your job – but you will be able to do that from your PMs. Do you see any real downside to this for the individual? And don’t tell me … but what if the price of PMs drops below todays levels? If we are talking about the choice between owning PMs or Treasuries, what do you care about a transient drop in PM prices? >>