By SD Contributor AGXIIK:
The government says that once the Roth is converted, there are no taxes on withdrawals after that. Of course, the gummint is great at the big lie. Anytime in the future the Roth safe harbor could be cancelled. All a president would have to do is pull the NDRP or NDAA trigger, and they own our butts.
Most people would never even hear of the IRA grabs thus leaving themselves as a convenient target. Those that were smart enough to see this coming would do just what most of us are doing. Slowly removing the IRA balances, paying the much smaller amounts of taxes and moving on.
There’s a good possibility that the GRA or pension grabs will move up in line of Federal control, thus leaving out the annoying waiting for revenues and actuarial estimation of when the holder will die, with the estate coughing up half of the balances.
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I don’t think the GRA is a feint. The Roth IRA conversion was the real feint. Probably millions of Americans converted to the Roth, as it was suggested by many financial planners as a good idea when tax rates were low.
At conversion the Roth coughs up a serious chunk of taxes. Government says that once the Roth is converted, there are no taxes on withdrawals after that. Of course, the gummint is great at the big lie. Anytime in the future the Roth safe harbor could be cancelled. All a president would have to do is pull the NDRP or NDAA trigger, and they own our butts.
Most people would never even hear of the IRA grabs thus leaving themselves as a convenient target. Those that were smart enough to see this coming would do just what most of us are doing. Slowly removing the IRA balances, paying the much smaller amounts of taxes and moving on. The IRS wins but only on a minor income level.
The IRS calculated that the tax revenues from us old farts taking distributions into our golden years would represent a good solid revenue stream. We would still be paying into the system just like when we made the big bucks in our more productive years. There is a reason you must start taking withdrawals at age 70. The gummint is many things, but patience is not one of their virtues.
The gummint would have a nice solid predictable tax revenue stream from the oldsters that would help keep revenues stable. The retirement plans really came into their own in the 1980, when tax rates were pretty low, thanks to Reagan. In the last 30 years rates have edged upwards in a fairly continual path, going much according to plan. Outside the aberration of the Bush tax cuts that came on top of the war costs, the rates could be studied, computed on an reasonably accurate actuarial basis based on the aging of the population and the commencement of IRA extractions. It was not so much the actual realized tax revenues; it was the realization that they were hard numbers that the Tax Nazis could count on.
Some of the things that the IRS did not take into account were the last two severe equity/Dow crashes, both of which stripped away a significant portion of the IRA overall values. 401k became 201k. Nonetheless, the multi trillions in private retirement savings are both a short and long term target. Short term due to the gummint greed and need for money now. Long term in that the IRS will get a significant portion of the IRA balances over a 20 year distribution time line. There’s a good possibility that the GRA or pension grabs will move up in line of Federal control, thus leaving out the annoying waiting for revenues and actuarial estimation of when the holder will die, with the estate coughing up half of the balances. The GRA may compete with the IRS as a revenue source, putting the IRS in second place even after all their careful plans and projections.
Socialist (IRS) are criminals with a slow time line. Communists (GRA) are Socialists with a huge lack of patience and guns. We’re sort of sandwiched between the two right now.
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I cashed my pension in years ago when I left the City of Long Beach, Ca. The only thing I’m worried about now is my SS I took that when I was 64 and I was glad I did but who knows what will happen with that and my Veterans Pension (which I use to add to my Stack) Only the Government knows. Keep Stacking
Considering all the screw-ups these guys have had, it would not stretch the imagination to believe that even they do not know. I am not a government person or a politician but I am a pretty fair observer. I can tell when others have talent at what they do, even if I cannot do it myself. I can also spot competence in others and I am seeing precious little of that in government circles these days.
It is VERY tempting to go with the “these guys can’t do ANYTHING right” attitude. Most of the time, that would be correct. Unfortunately, that would also set us up to miss the time or two when they really can get something done… probably something very unpleasant / harmful. Be watchful. Be wary. Be careful. But above all be as independent as possible.
Yes, the retirement plans of all Americans are a serious pile of cash that the Gov types out there would love to blow on their pet projects, just as they have already blown trillions of SS payment dollars since 1965. Yes, they left a bunch of IOUs in place of that money but we all know that there is no pot of money just sitting there, waiting to be paid out as benefits. There SHOULD be but there isn’t. Instead, there are “special” T-bonds that the Gov will cash in, receive money in return, and pay the benefits with that. Unfortunately, there is no money to pay for these T-bonds, so the Gov prints the money to pay them off. This printed money dilutes the value of ALL of the currency in circulation and by no small amount, as SS and medicare benefits are a substantial part of the US Gov budget. As we all know, dilution always makes things less valuable… 80 proof whiskey, for example, is more valuable than 40 proof whiskey because 40 proof whiskey is 80 proof whiskey that is diluted in half with water.
When the Roth IRA and later the Roth 401K came along, government made a promise not to tax qualified withdrawals. A qualified withdrawal is one that occurs when: the IRA owner is older than 59.5 and has had the IRA for more than 5 years. Contributions can be withdrawn at any time because the tax due on that money has already been paid up front. Yes, they can revoke this promise at any time but I do not think that they will. Instead, they will find some slippery way of still being able to say that they kept their promise, while at the same time finding a way to tax this money that is less obvious. One way would be for the Roth IRA / 401K to remain tax free but to implement either a national sales tax or a value added tax (VAT). Many EU countries have a substantial VAT that adds 15-20% to the cost of goods purchased there. The current president of the US has made it clear by his actions, if not his words, that he thinks that European socialism is the way to go in government, so is guiding the US in that direction. Whenever someone wanted to insult a dumb idea before it could be implemented, all they would say is, “that will make the US just like France”, or some such comment. The Obamunists do not think that French socialism is a bad thing. In fact, they seem to rather admire it. This leads me to question their intelligence in many ways. Anyway, by implementing either of these taxes, money taken from a Roth retirement plan will not be taxed directly but it sure will be when it is SPENT! Either way, the goal of additional taxation is realized but in the latter case, the pols can always say that they kept their Roth no-tax pledge. This seems slippery enough to appeal to the ruling class.
I cashed out my 401k when I became disabled to pay medical bills. Now I squeak by on SSDI alone. I pity those still suckers to pay into the system
Mary B You are great example of how to do more with less in your self reliance. That is very admirable. I hope silver goes to $200 an ounce so all your hard work and efforts are vindicated.
Ed B you said it better than me thank you
Thanks for that, AG, high praise, indeed. I just added to what you put forward. Very good article and much appreciated. We can’t know what the future holds but it will be difficult to over-estimate the level of skulduggery to which the politicians and elites will stoop. As with those in jail, we must keep our backs to the wall and remember to never bend over to retrieve a lost bar of soap in the shower!