Stealing your 401(k)?
This old issue is raising its head again.
Stealing your IRA’s and 401(k)s. I have reported on
this issue from time to time over the past few years. The headline on the
link this time is “Obama’s Plan to Snatch Your Savings”.
First of all … this issue predates Obama.
But not by much.
A reminder … the first time I reported on this stuff was
when I discovered that there was a bill sitting in committee in the Senate that
would do this. I reported that information in a newsletter. In response I got
two letters from sitting Senators confirming that fact, but telling me they
would certainly not vote for such a bill – one a Democrat and on a Republican.
Remember the old saying … “where there’s smoke, there’s
fire” …. Or is it “where there’s fire, there’s smoke”? Or perhaps
it’s just cloudy outside. Whatever the case, this just won’t die. It’s either a
rumor people like, or there’s more to it than is generally assumed.
As many of you already know, I'm strongly against investing
in tax advantaged products such as IRAs or 401(k)s, unless your employer is
paying part of the loading cost. What you are doing, at least in a pre- 2008
world, is converting capital gain assets to ordinary assets … doubling your tax
rate from 20% to 39.6%. If you are in a net loss world, as we seem to be
right now, then you are just pushing your investment off into a higher tax rate
world. There doesn’t seem to be any end in sight for rising tax rates. I once
had a client in Tennessee, who may be deceased by now, God rest his soul, who
refused to pay tax on the millions of dollars on his 401(k) and donated the
entire thing to his church instead.
Tax advantaged retirement vehicles are not tax advantaged at
all, they’re just a marketing tool that was created a long time ago, possibly
with the intent to drive excess funds into tax “advantaged” vehicles in the
first place. Who knows. I do know they are staples in the hands of unscrupulous
tax advisors. And they are far and away the most common tax planning tool out
there. I don’t think there’s a physician on the face of the earth who hasn’t
invested significant amounts in tax advantaged vehicles.
At the very best, in my opinion, in the real world, there is
no tax savings associated with IRA’s or 401(k)s.
I’m not taking a position on this. I’m not in the position
of making predictions. I believe in another old saying … “If you’re going to
live by the crystal ball, you’d better learn how to eat glass.” Which is the
reason I don’t give investment advice either.
Thanks to a Silicon Valley client for the link.
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