Obama Budget Orders Confiscation of IRAs

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Posted 4/5/2013 by desertpea in NSBR Board
 

desertpea
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Posted: 4/5/2013 4:43:32 PM
This is terrible journalism, but look past that to get the real meaning:


President Obama’s budget, to be released next week, will limit how much wealthy individuals – like Mitt Romney – can keep in IRAs and other retirement accounts.

The proposal would save around $9 billion over a decade, a senior administration official said, while also bringing more fairness to the tax code.

The senior administration official said that wealthy taxpayers can currently “accumulate many millions of dollars in these accounts, substantially more than is needed to fund reasonable levels of retirement saving.”

Under the plan, a taxpayer’s tax-preferred retirement account, like an IRA, could not finance more than $205,000 per year of retirement – or right around $3 million this year.

The Hill



I have no words. I don't recognize this country anymore if this is deemed acceptable.

busypea
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Posted: 4/5/2013 4:49:30 PM
Where in the world are you getting the idea IRAs will be confiscated? Nothing of the kind is said.

They are basically proposing lifetime maximum cap on value, which I personally don't find all that terrible. I don't love it, because it's not entirely within our control due to investment gains, but I don't find it an abomination either. There are already annual contribution limits (though I personally think they are too low).

IRAs should not be a tax shelter to amass funds far beyond what someone will ever use in retirement.

Edited because I mistakenly said a lifetime cap on contributions, which is not correct and not what I meant.

scrappower
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Posted: 4/5/2013 4:51:13 PM
What you posted has nothing to do with confiscation. It is only limiting the amount allowed in tax preferred accounts. Which already happens to some extent.



leftturnonly
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Posted: 4/5/2013 4:52:21 PM
Someone with that much money will take their money out of the country instead of investing in plans here.

What else are wealthy people going to do? Stuff money under their mattresses?










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eebud
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Posted: 4/5/2013 4:53:08 PM

They are basically proposing lifetime maximum contributions, which I personally don't find all that terrible. There are already annual contribution limits.

Help me understand what I am missing. I am not seeing anything about changing the amount of contribution. It looks like they are trying to limit the amount of the value of the IRA. That is not the same as the contribution. What if you have made very good choices in where your money is invested inside your IRA and the value goes way up? What are they saying will happen to the "excess" if you IRA account cannot go over a certain amount?

****ETA I am also curious how 401K's figure into this or if they figure into it. Will they also limit the value of those?





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busypea
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Posted: 4/5/2013 4:54:44 PM

Help me understand what I am missing. I am not seeing anything about changing the amount of contribution.

You are totally right. Wrong word choice on my part. It's a cap on the value, not the contribution. I understood that when I read it, but I screwed up when I typed my post.

leftturnonly
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Posted: 4/5/2013 4:55:32 PM

What are they saying will happen to the "excess" if you IRA account cannot go over a certain amount?


It's too much money for you.

The government is here to help.







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eebud
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Posted: 4/5/2013 4:56:58 PM

Help me understand what I am missing. I am not seeing anything about changing the amount of contribution.

You are totally right. Wrong word choice on my part. It's a lifetime max on the value, not the contribution.

What will then happen to the "excess" if your investment choices are good enough to put you over the allowable amount?

I realize this is not a law at this time. Just trying to figure out how it would affect people if it does happen mostly because it would not surprise me at all to see changes to anything that is tax deferred.





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eebud
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Posted: 4/5/2013 4:57:46 PM

It's too much money for you.

The government is here to help.


That made me LOL but it's not really funny.





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busypea
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Posted: 4/5/2013 4:58:05 PM

What are they saying will happen to the "excess" if you IRA account cannot go over a certain amount?

I think it is most likely that the excess amount would be taxable.

To assume the government is going to confiscate it is absurd IMO.

busypea
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Posted: 4/5/2013 5:02:00 PM
Obviously, there is not nearly enough information in that article.

Can a married couple have $6MM total, or would there be another marriage penalty?

What happens if your IRA balance exceeds $3MM at some point during a year, but at year end, it's below $3MM?

Could you carry investment losses within your IRA forward to offset the future possibility of exceeding the cap?

There are probably 200 questions we could come up with in a matter of a few moments that we can guess the answers to, but do not know for certain.

What I do feel 99.87% sure about is that there will be no "confiscation." Taxing above that threshold? Almost assuredly.

lucyg819
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Posted: 4/5/2013 5:03:06 PM
Really, desertpea? REALLY??


Someone with that much money will take their money out of the country instead of investing in plans here.

What else are wealthy people going to do? Stuff money under their mattresses?

I dunno, maybe invest it and then pay taxes on the income?


LUCYG
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--Bertrand Russell



busypea
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Posted: 4/5/2013 5:04:40 PM

maybe invest it and then pay taxes on the income?

Kinda like people do now when they max out retirement contributions, huh?

eebud
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Posted: 4/5/2013 5:10:05 PM
busypea, you are right that there are a million questions that would need to be answered about this and this article doesn't hit any of them.

If something like this did happen, I would expect that it will also affect 401k's and what the heck is the investment account for government workers...........I am forgetting the name. Anyway, I'm sure y'all know what I am talking about. Even on the surface though, I don't like this. They already limit contributions. They also require you to take minimum withdrawals beginning at age 70 1/2 and they do not allow any new contributions to a traditional IRA at that age. Taxes will be paid at that time. I don't like the idea of penalizing people for being successful with their investments in their IRA's. I am thinking, for example, about the company stock for the company that I used to work for. I was a single mom with only my income so I didn't get to buy a lot but I did buy some in my 401K (that is now in an IRA). That stock has split (2 for 1) 3 times since I bought it. I think about all of those who were able to afford to buy a lot more than I could at the time and if they hung onto it, I am sure the value is now quite high. I don't feel that they should be penalized for that. These are people who would be getting very close to retirement age.





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Compwalla
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Posted: 4/5/2013 5:11:02 PM
No one is taking their money. It simply says you can't hide too many of your dollars in an IRA to avoid taxes. Accumulate over X dollars and the gain is taxable. Drama much?


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eebud
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Posted: 4/5/2013 5:12:12 PM

maybe invest it and then pay taxes on the income?

Kinda like people do now when they max out retirement contributions, huh?

But they are already doing this. The max their contribution and then pay taxes on the rest. They will then pay taxes on the withdrawals from their IRA when they begin making withdrawals.





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eebud
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Posted: 4/5/2013 5:13:42 PM

Accumulate over X dollars and the gain is taxable. Drama much?

Should they at least be able to withdraw their excess that they are required to pay taxes on and not have to pay the early withdrawal penalty?





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busypea
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Posted: 4/5/2013 5:22:07 PM
eebud,

I'm not sure that I agree that 401(k)s and 403(b )s and the like would also be affected, but if they were, the value cap would most likely be considerably higher $3MM, as contribution limits are much higher than the $5K/yr (in 2012) max for a traditional IRA.


eebud
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Posted: 4/5/2013 5:25:34 PM

Under the plan, a taxpayer’s tax-preferred retirement account, like an IRA, could not finance more than $205,000 per year of retirement – or right around $3 million this year.


I have one more question. Do investment advisors really suggest 7% withdrawals each year from your retirement account? I thought the % was much lower than that......like 3 or 4%. Also, based on that comment, it looks like if this happens, it will be IRA's, 401K's and any other retirement account you are able to set up. I think this will be another huge bureaucracy to enforce since people have multiple accounts. I wonder what their suggestion is for Roth IRA's that is after tax money and not taxed when it is withdrawn. I wonder if they will limit the value of it too?





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lucyg819
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Posted: 4/5/2013 5:28:50 PM

Should they at least be able to withdraw their excess that they are required to pay taxes on and not have to pay the early withdrawal penalty?

Makes sense to me. That's certainly a negotiable issue and I wouldn't say I'm always in agreement with tax laws.

My issues were with (1) the OP ... Pres. Obama is not going to confiscate her damn money, not this week anyway and (2) lefty ... there is another option besides taking your money to another country to avoid taxes or stuffing it under the mattress: keep your money here, invest it, and pay taxes on the income. Ta-dah!


LUCYG
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eebud
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Posted: 4/5/2013 5:30:33 PM

eebud,

I'm not sure that I agree that 401(k)s and 403(b )s and the like would also be affected, but if they were, the value cap would most likely be considerably higher $3MM, as contribution limits are much higher than the $5K/yr (in 2012) max for a traditional IRA.


And see, I don't get this line of thinking at all. Why would be ok for an IRA but not a 401K? They are both tax deferred. They both allow us to avoid taxes in the current year. Many people transfer their 401K's to an IRA when they leave a job. Why would it not be subject to the limit while in the 401K but if you want to move it to an IRA, it is now fair game for taxes? This doesn't make sense to me.

I guess I am obsessed with this idea. LOL I don't like that someone is going to be treated different because they made good investments in their IRA/401K/etc. It seems like another way to penalize people who are successfully trying to prepare for their future.





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desertpea
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Posted: 4/5/2013 5:35:56 PM
There are no limits to contributing to an IRA -- only the threshold of which you have to pay taxes on that contribution. There are limits on how much you can use as a tax deduction.

You can contribute 100% of your MAGI to an IRA if you don't have a retirement plan at work. This is all written out for anyone to read on the IRS website.

And yes, it is confiscation -- they specifically state it will "generate revenue" in that horribly slanted piece. If they limited the money you could contribute, then it wouldn't generate additional taxes like it does now. There isn't going to be a check written out to you by the bank saying "oops, you saved too much." They are going to take it in an attempt to balance the budget, and no one is going to stop them.

But first, let's get some low hanging fruit scared enough to empty their IRAs so we can get that early withdrawal penalty money.

eebud
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Posted: 4/5/2013 5:40:20 PM

Should they at least be able to withdraw their excess that they are required to pay taxes on and not have to pay the early withdrawal penalty?

Makes sense to me. That's certainly a negotiable issue and I wouldn't say I'm always in agreement with tax laws.

Cool!!

I can only hope that my investments will get to these values so that I would have to worry about it. I guess as someone who is not too many years away from hopefully retiring, these are things that I am paying a lot more attention to than I did 15 or more years ago.

And, I do agree that the article doesn't say your money will be confiscated. It doesn't say what will happen to the "excess". Also, I suspect that if anything like this ever did go through, I think the amount would be much more than $3 million.





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eebud
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Posted: 4/5/2013 5:58:48 PM

There are no limits to contributing to an IRA -- only the threshold of which you have to pay taxes on that contribution

Are you sure? Everything that I am finding says that you are still subject to the same contribution limit whether you are able to take it as a deduction or not.......$5k or $6k if over 50.


Contribution Limits
The maximum contribution limit for traditional IRAs and Roth IRAs combined is $5,000, as of November 2010. Those over 50 are allowed to contribute another $1,000 per year. However, if you are covered by a retirement plan at work, your deductible is limited: If you are single, the deductions start phasing out at an income of $56,000 per year, and your allowable deductions phase out completely at $66,000. If you are married filing jointly, your deduction allowance begins phasing out at an income level of $89,000, and phases out completely at $109,000 per year.

If you are NOT covered by a retirement plan, you can deduct the full amount at any income level if you are single. If you are married and file jointly, your deduction limits phase out beginning at $167,000 year and phase out completely at $177,000 per year.

Nondeductible Contributions
You can contribute the $5,000 to an IRA regardless of your income level, and you can contribute a total of $6,000 if you are over 50. If your deductions are limited due to your income level, then you can take the allowable deduction and contribute the rest on a nondeductible basis.



Non-Deductible IRA Contribution





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desertpea
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Posted: 4/5/2013 6:03:58 PM

keep your money here, invest it, and pay taxes on the income. Ta-dah!


Too bad most of us younger folks did exactly that -- put more money aside for retirement right from our first paychecks and paid taxes on it because we contributed over the threshhold so we didn't have to rely on welfare in our old age.

To hell with us, right? Let's start up some good old fashioned class warfare and cry about the rich having so much that people won't pay attention to how much the middle class is going to get squeezed by this. Like they going to give us back the taxes we paid when we made the contributions hahaha!

That is the bulk of the money in IRAs -- the middle class. Why do people hate the middle class so damn much that they want to rob them of their retirement? It says "per year of retirement" -- so now the bill circulating about raising retirement age to 70 makes sense. Screw it, make it 80.

You're wrong again Lucy. Very, very wrong.

lucyg819
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Posted: 4/5/2013 6:20:13 PM

You're wrong again Lucy. Very, very wrong.

Well, it wouldn't be the first time. But somehow I am convinced that your wrongs add up to a lot more than my wrongs.

And how did you ever get that whole mess from my post? Kind of the same way you got "will confiscate your money" from "limiting accumulation of millions" from the article in the OP?


LUCYG
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--Bertrand Russell



desertpea
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Posted: 4/5/2013 7:01:19 PM
I already explained people pay taxes on monies contributed to traditional IRAs over the threshhold, and they pay it again when they make the withdrawals. These are accounts that are held in US banks and reported to the IRS. No one is hiding millions, and the majority of those retirement holdings are spread across the middle class.

Explain why you think some bank or the government is going to write you a check for "the excess" and refund the taxes you paid on the IRA contributions. $205,000 per year of retirement. After taxes, that wouldn't even cover the annual costs of an assisted living facility in about five years. You know, the places middle class American taxpayers go to -- not the evil rich people.

Oh btw, this same Obama budget is going to cut your SS and Medicare some more, but make sure the Republicans are blamed, the spineless morons that they are:



Mr. Obama’s proposed deficit reduction would replace those cuts. And if Republicans continue to resist the president, the White House believes that most Americans will blame them for the fiscal paralysis.

Besides the tax increases that most Republicans continue to oppose, Mr. Obama’s budget will propose a new inflation formula that would have the effect of reducing cost-of-living payments for Social Security benefits, though with financial protections for low-income and very old beneficiaries, administration officials said. The idea, known as chained C.P.I., has infuriated some Democrats and advocacy groups to Mr. Obama’s left, and they have already mobilized in opposition.

As Mr. Obama has before, his budget documents will emphasize that he would support the cost-of-living change, as well as other reductions that Republicans have called for in the popular programs for older Americans, only if Republicans agree to additional taxes on the wealthy and infrastructure investments that the president called for in last year’s offer to Mr. Boehner.

NY Times


I'm out for Shabbat but I'll check on the thread after.

desertpea
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Posted: 4/5/2013 7:16:57 PM

Are you sure? Everything that I am finding says that you are still subject to the same contribution limit whether you are able to take it as a deduction or not.......$5k or $6k if over 50.


Yes.


Tax on excess IRA contributions

An excess IRA contribution occurs if you:
Contribute more than the contribution limit.
Make a regular IRA contribution to a traditional IRA at age 70½ or older.
Make an improper rollover contribution to an IRA.

Excess contributions are taxed at 6% per year as long as the excess amounts remain in the IRA. The tax can’t be more than 6% of the combined value of all your IRAs as of the end of the tax year.

IRS






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Posted: 4/5/2013 8:17:31 PM
Desertpea, I am glad you acknowledge it's a horribly written piece. With that understood, between that as the discussion focus and your thread title, how can we attempt to have a reasonable discussion?


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freecharlie
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Posted: 4/5/2013 8:25:16 PM

What else are wealthy people going to do? Stuff money under their mattresses?
I've heard a cereal box in the freezer works well.


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Posted: 4/5/2013 8:29:10 PM
Will the Government Start Taking 401(k) Money?



By Money Morning Staff Reports, Contributing Writer, Money Morning
February 11, 2013

With Washington battling over what to do about its $16.4 trillion debt pile, rumors are swirling that the government will start taking 401(k) money to cure its fiscal ills.

There's plenty to take.

A study published by the Investment Company Institute in 2012 stated that U.S. retirement assets at the mid-point of the year totaled somewhere in the neighborhood of $18.5 trillion.

If you look specifically at what most Americans take advantage of - IRAs and 401(k) plans - they have amassed $3.5 trillion and $5.1 trillion, respectively.

These large sums of untaxed money are proving to be very tempting to an administration looking for revenue to help rein in our whopping national debt.

"The government is spending money like a drunken sailor, and they need to get their meat hooks into any cash stock pile they can," Money Morning Chief Investment Strategist Keith Fitz-Gerald explained in the accompanying video on why the government could start taking 401(k) money.

Here's why you should be alarmed.

Our Chief Investment Strategist Keith Fitz-Gerald first explored this story in 2010. Check out his analysis here: Why the Government Wants to Hijack Your 401(k)


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Posted: 4/5/2013 8:50:14 PM

The senior administration official said that wealthy taxpayers can currently "accumulate many millions of dollars in these accounts, substantially more than is needed to fund reasonable levels of retirement saving."


The bolded part is what sets my teeth on edge. "Reasonable levels of retirement savings." I've had quite enough of the gubmint's reasonableness.



*maureen*
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Posted: 4/5/2013 8:53:01 PM

What else are wealthy people going to do? Stuff money under their mattresses?



Nah, that makes the mattress too uncomfortable, I bury it in mason jars in my back yard.

Darcy_Collins
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Posted: 4/5/2013 9:33:47 PM
Here's another article regarding this. Unfortunately the administration has not said how the intend to implement the cap.

bloomberg

I would THINK it would be implemented similar to the age distributions - ie forcing distributions and taxing them. It clearly says that it will generate $9 billion over the next decade, so somethings getting taxed

I think the idea that the government is going to decide that $205,000 in retirement is reasonable is bull.

And let's keep in mind nobody is HIDING anything in an IRA and Uncle Sam absolutely gets his money eventually. It's merely a tool to allow individuals to determine whether they want to accumulate more assets now and pay Uncle Sam later (or have their heirs pay Uncle Sam) - or spend more now and pay taxes now.




MochasMom
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Posted: 4/5/2013 9:45:36 PM

And let's keep in mind nobody is HIDING anything in an IRA and Uncle Sam absolutely gets his money eventually. It's merely a tool to allow individuals to determine whether they want to accumulate more assets now and pay Uncle Sam later (or have their heirs pay Uncle Sam) - or spend more now and pay taxes now

Darcy_Collins: did you have to type that? All the folks that think the "rich" have loopholes and they think IRA's are one of them are at risk of finding out the truth. Next thing you know someone is going to show them the income limits or expose the lack of things like child or education credits that the "rich" don't get.

Berty22
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Posted: 4/6/2013 12:59:51 AM
"so we didn't have to rely on welfare in our old age"
-------

Social security is not welfare. It is a program that people "earn" by working and paying taxes into. Welfare programs are based on people's lack of money and resources; whereas everyone can collect social security -as long as they meet the requirements of age, number of quarters they worked, etc.-even rich people.

Berty

lucyg819
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Posted: 4/6/2013 1:20:42 AM

When did it become the government's business how much money I am accumulating anywhere? When did it become unfair that someone making money could save it for their own use?

In a logical world, the government would be encouraging people to provide for themselves so that government could use limited resources to assist those who cannot provide for themselves.

We are no longer living in a logical world when the government has the remotest idea they have any business telling citizens that government will decide how much money they are permitted to save and retain, that they don't need to keep the money they have earned and stashed to have a comfortable retirement (aka bolster the economy with spending for travel, restaurants, gifts, etc) if it exceeds what government believes they should have.

What is with all this melodrama? The government is not telling you can only save a certain amount of money for your old age ... it's just talking about limiting the amount you can keep in a specific type of tax-deferred account. No one is limiting your savings.


LUCYG
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"The whole problem with the world is that fools and fanatics are always so certain of themselves, but wiser people so full of doubts."
--Bertrand Russell



lucyg819
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Posted: 4/6/2013 1:25:45 AM

Darcy_Collins: did you have to type that? All the folks that think the "rich" have loopholes and they think IRA's are one of them are at risk of finding out the truth. Next thing you know someone is going to show them the income limits or expose the lack of things like child or education credits that the "rich" don't get.

MochasMom, I would think you'd be embarrassed to post such childish, pointless crap. But apparently not.


LUCYG
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"The whole problem with the world is that fools and fanatics are always so certain of themselves, but wiser people so full of doubts."
--Bertrand Russell



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Posted: 4/6/2013 2:29:37 AM

lefty ... there is another option besides taking your money to another country to avoid taxes or stuffing it under the mattress: keep your money here, invest it, and pay taxes on the income. Ta-dah!


Invest money in business...... I thought that was considered evil profiteering now.

It makes some people too much money that they aren't taxed enough on.

The election wasn't all that long ago. I seem to remember quite a few discussions about how investors didn't deserve to make huge returns if they happened to put their money on something that took off.

They don't really deserve tax breaks.... that kind of thing.


Naturally, someone who was able to earn great wealth will decide that Lucy on the internet is right. They should keep their money here and invest so they can continue to pay higher and higher taxes.






I've heard a cereal box in the freezer works well.

I bury it in mason jars in my back yard.

It's always good to have options.











If PC is the way to get to Heaven, I'm going straight to Hell.



twinsmom-fla99
AncestralPea

PeaNut 203,642
May 2005
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Posted: 4/6/2013 7:36:58 AM

When did it become the government's business how much money I am accumulating anywhere? When did it become unfair that someone making money could save it for their own use?
No one is saying you can't save whatever you want.

When you save money, you get taxed on the earnings like anything else.

However, if you decide to invest in a type of account that the government gives special privileges, such as an IRA which grows tax-free until you withdraw the money, then it kinda is the governments business. The government sets the rules on when you can take money out of that account without charging a tax, and it sets rules on when you have to start taking money out so that you don't keep accumulating money tax free as to pass on to your heirs (required distributions start at age 70.5).

IRAs were intended to help people save for retirement. They were never intended to become a place to park your money tax-free until you die so that you pass on more money to your heirs. I'm not passing judgment on this proposal until I see more details, but I really don't have a problem if they are saying that you will have to withdraw the excess once you reach a certain age. That gets the money out of the tax-free account and back into the economy.


I-95
It's all just nonsense anyway!

PeaNut 97,456
July 2003
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Posted: 4/6/2013 8:09:13 AM

Explain why you think some bank or the government is going to write you a check for "the excess" and refund the taxes you paid on the IRA contributions. $205,000 per year of retirement. After taxes, that wouldn't even cover the annual costs of an assisted living facility in about five years. You know, the places middle class American taxpayers go to -- not the evil rich people.


I'm having trouble understanding this..... $205,000 per year of retirement? Right now only 3% of the population makes more than 200K per year. Seriously, how many people have enough in their IRA to pay them 205K per year?

As for the rich, most of them are not counting on an IRA to see them through retirement. At best that's just one of their assets, the rest is spread between a variety of investment funds, some in the USA, some not. If your only investment is an IRA, then you're either not rich, or you not smart.

angievp
Ideay pues?

PeaNut 143,106
April 2004
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Loc: Miami

Posted: 4/6/2013 9:14:57 AM

When did it become the government's business how much money I am accumulating anywhere? When did it become unfair that someone making money could save it for their own use?




If the government can involve itself in the business of banking regulation, and if an IRA is a "legal creation" through which people can avoid paying taxes, then YES, it is very much the government's job to regulate same, which includes setting limits on how much money you can stash away TAX FREE.

You can save all the money you want, but if you want the government to stay completely out of your business, then I suggest you build an underground shelter and stash all your money there.

scrappower
Allons-y Alonso

PeaNut 174,150
October 2004
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Posted: 4/6/2013 9:15:15 AM
Is this seriously some kind of alternate universe? No one is saying you can ony amass so much money for retirement and no one is confiscating anything.



Epeanymous
PeaFixture

PeaNut 15,108
May 2001
Posts: 3,301
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Posted: 4/6/2013 9:19:44 AM
Is "tax" now synonymous with "confiscate"? Oh, wait, never mind,

Darcy_Collins
PeaFixture

PeaNut 514,615
July 2011
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Posted: 4/6/2013 9:25:29 AM

Seriously, how many people have enough in their IRA to pay them 205K per year?


Well clearly enough to collect $9 billion over the next 10 years. As the "proposal" is extremely short on details, it's hard to speculate on just what will be implemented and whether the taxes will feel confiscatory. For example if they force distributions, but still implement the 10% early withdrawal penalty on top of the highest income brackets - I would not be a proponent.
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