I heard this from several people who stopped by our booth last weekend in Chicago at the coin/gold convention. This is the follow up to “the government is going to take all my gold if I don’t store it under my bed”. As an IRA administrator I am interested in anything that affects IRA law but, really, only when it becomes law. I perused the internet and came upon a number of histrionic articles that talked about the government taking our retirement plans and at least one used the example of the country of Cypress. As in “if it can happen to the Cypriots it can happen to us”. I have not yet found the connection between Cypress and US policy that allows this claim. Some of the confusion is that what is currently in the works does NOT involve actually "taking" money away from the IRA or individual. What is proposed is removing the tax deferred status on some IRA money thus forcing the individual to take a taxable distribution. Besides this, I also found theses additional items of interest (note: if you have less than /$3.4 million in your retirement account(s) skip items 1 through 4 and jump to item 5):
1. This is still in the negotiation stage and is not yet a law.
2. If you have $3.4 million in your IRA/401k you would be affected.
3. If you are fortunate enough to have $3.4 million in your account, you would:
- not be allowed to make further contributions to the account
- have to distribute that amount necessary to bring it to the $3.4 million level (to yourself, not the US government) and,
- have to pay taxes on the amount distributed.
4. The $3.4 million threshold would change annually in proportion to the cost of annuities
5. If you have less than the $3.4 million threshold you can be affected by:
- Company 401k plans could be disbanded if the Plan can no longer shelter the retirement savings of the more successful retirement investors.
- As a sub “$3.4” individual you may end up in an individual retirement plan with smaller contribution limits.
6. The current 3.4 cap would affect only 0.1% of those 60 or over.
7. On the bright side, one proposal would exempt IRA accounts worth less than $75K from the required minimum distribution at 70 ½ which is currently in place. This is a good thing.
Why IRAs and retirement plans? Why not your personal non-sheltered savings?
The reason is taxes. You have not yet paid taxes on your Traditional IRA and Traditional 401k money and won’t be taxed you take the money out. If anything illustrates the value of tax advantaged plans like IRAs and 401ks it’s this: the IRS is willing to allow special tax treatment on these accounts so that earnings inside the accounts can grow, untaxed, until withdrawn; but in the future they not be willing to allow this non-taxed money to stay in unlimited balances, untaxed for years.
At New Direction IRA we have very very few accounts that would be affected by the proposed law, if it actually becomes a law. I don’t think very many people realize and utilize the power of a tax sheltered account yet. I can only hope that this latest proposal to limit IRAs, will make people realize how precious and powerful the IRA (and 401k) can be. Especially the money is self-directed into investments that the IRA holder understands.
