Obama to cap tax-preferred retirement accts to $3MM

[Otsog]

So, nothing... other than platitudes  ::)

 

Kind of funny seeing a huge government hand-out program getting curtailed being attacked for being 'socialist'.

[Parsad]

Why is it unreasonable to tax retirement accounts over $3MM?

 

Don't tax me, don't tax you. Tax that fellow behind the tree!

 

Hey, I'm a liberal-socialist from Canada, but I think this is poorly implemented...I would expect a massive outcry, but the problem is that there probably aren't enough accounts over $3M to get the right response. 

 

It's not annual income where your tax level could be adjusted regularly, and you expect the fluctuations.  These accounts were created for a specific reason, where investor's could plan their retirement savings over the next 10, 20, 30 plus years, and suddenly they become taxable above $3M.  I don't think this is fair, and the amount seems quite arbitrary and unconstitutional.  Why don't they cap divorce settlements at $3M then? 

 

Cheers!

[Otsog]

If you cap divorce settlements at $3m where does any money exceeding $6m go?  The government?

[rmitz]

I must say that I reacted badly to hearing this, but after running the numbers, particularly if the 3M is indexed to inflation, it does not look like something which will be very common; it really seems like a pot shot at Mitt Romney and his engineering of his kids' accounts with dramatically undervalued private equity holdings.

 

Let's say you started at 21 with two earners and magically were able to contribute the maximum to your 401ks and Roth accounts.  I'm simplifying a bit; I'm going to assume that inflation is 3%, and that contributions are allowed to increase at the rate of inflation (not historically true). I'm also going to start from today's contribution numbers, which are 17500 and 5500 per person per year.  This also does not count employer contributions which can vary a great deal; the maximum employer contributions per 401k are 33,500* per year per person; that's a quite rarified level indeed if you can get that.

 

At age 65, with a 10% growth rate (something many people would be very happy to get!) These two earners will not max out the inflation-adjusted 3M cap (though barely; 11% and you're above the threshold with three years to spare).  If that's actually supposed to be 3M per person, then you've got a ton of room left.

 

While there are people out there like eric who have done exceedingly well, I really don't think this is actually targeted at them.  I hope one day I'd be in that crowd. :)

 

Regardless, I doubt this will pass.

 

*Edit, corrected employer max contribution*

[ERICOPOLY]

How dare those dirty, uncaring, bigoted folks make that much money.  What, those folks made it and earned it -- never mind, they still should not have that much.

 

Envy runs the world.

 

Yeah, don't you have to have earned income to contribute.  And then it could only grow from your own investments and contributions.  Something seems off here.

 

 

Variable annuities are effectively the same as IRAs and have no earned income provision for contributions.

 

In fact there are no limits whatsoever on contributions.

 

So you could be worth $100bn and put the entire thing into variable annuities.

 

Thus your money would be compounding tax-deferred in mutual funds wrapped in the variable annuity policy.  You can have it in managed funds, or index funds, it's all the same type of thing.

 

And the withdrawal rules/penalties are similar to IRAs.

 

So why is he picking a fight with the IRAs instead?

 

So as not to piss off the powerful political allies?

[ERICOPOLY]

Real estate capital gains are largely never taxed for a man like Trump.  They just do a 1031 exchange when they sell one property to buy another.  Then you die holding onto the capital gains and your heirs enjoy the tax-free step up in cost basis.  No capital gains taxes ever.

 

The IRA at least attempts to capture this in spirit -- you sell one stock to buy the other.  But none of this is income to you until you withdraw your equity from the account.  So it's like a 1031 exchange (at least for the capital gains treatment of it) without the paperwork and lawyers.

 

 

 

 

 

[ERICOPOLY]

If you cap divorce settlements at $3m where does any money exceeding $6m go?  The government?

 

The argument is usually that the wife deserves to be able to maintain her standard of living "to which she has become accustomed".

 

Well, billionaires and millionaires -- aren't they entitled to retirement spending "to which they have become accustomed"?

 

Hence, the $200k argument is suspect.

 

 

[Parsad]

I must say that I reacted badly to hearing this, but after running the numbers, particularly if the 3M is indexed to inflation, it does not look like something which will be very common; it really seems like a pot shot at Mitt Romney and his engineering of his kids' accounts with dramatically undervalued private equity holdings.

 

Let's say you started at 21 with two earners and magically were able to contribute the maximum to your 401ks and Roth accounts.  I'm simplifying a bit; I'm going to assume that inflation is 3%, and that contributions are allowed to increase at the rate of inflation (not historically true). I'm also going to start from today's contribution numbers, which are 17500 and 5500 per person per year.  This also does not count employer contributions which can vary a great deal; the maximum employer contributions per 401k are 51k per year per person; that's a quite rarified level indeed if you can get that.

 

At age 65, with a 10% growth rate (something many people would be very happy to get!) These two earners will not max out the inflation-adjusted 3M cap (though barely; 11% and you're above the threshold with three years to spare).  If that's actually supposed to be 3M per person, then you've got a ton of room left.

 

While there are people out there like eric who have done exceedingly well, I really don't think this is actually targeted at them.  I hope one day I'd be in that crowd. :)

 

Regardless, I doubt this will pass.

 

Yes, it won't affect a great number of people, but it kind of completely obliterates what a free-market capitalist society is fundamentally based on.  I don't know about Romney, but I do know that Eric is the one who absorbed all of the risk.  He could have very well lost everything...he accepted the risk, and then he received the reward. 

 

Now Eric's IRA should be taxed if he passes it on to his children, but I don't understand how it could be taxed in his hands or his spouse's.  I would much rather they increase the estate tax on assets outside of the principal residence, rather than tax someone's IRA or other retirement account.  Silly rule and very disappointing!  Cheers!

[CONeal]

As much as they have screwed with how inflation is caculated how can one really be sure that 3 million is enough.  With medical cost constantly going up and inflation numbers not counting things like gas, food, etc (these are still real cost) the govt should not dictate how much I need for retirement.  A 1% change in inflation causes a huge swing in wheither or not a person will have enough for retirement. 

 

If you out live the 3 million will the gov't continue to give you 205k a year since that's what they deemed as reasonable?

 

Without pensions these days and a reasonable expectation that social security might not be around when I'm 65 the younger generation is going to get bent over.

[rmitz]

Yes, it won't affect a great number of people, but it kind of completely obliterates what a free-market capitalist society is fundamentally based on.  I don't know about Romney, but I do know that Eric is the one who absorbed all of the risk.  He could have very well lost everything...he accepted the risk, and then he received the reward. 

 

Now Eric's IRA should be taxed if he passes it on to his children, but I don't understand how it could be taxed in his hands or his spouse's.  I would much rather they increase the estate tax on assets outside of the principal residence, rather than tax someone's IRA or other retirement account.  Silly rule and very disappointing!  Cheers!

 

I don't like it either, but I really doubt it will happen; it's political posturing and meant as a negotiation point to be given back (I think).

[ERICOPOLY]

I don't know about Romney, but I do know that Eric is the one who absorbed all of the risk.  He could have very well lost everything...he accepted the risk, and then he received the reward. 

 

A couple of points about my Roth IRA:

1)  I can't deduct losses against anything.  So if I lose 100% of my RothIRA it's a true 100% loss.

2)  I can't withdraw any of the gains to give them to my children (I can't shove it into a trust today or I'll be hit with early withdrawal penalties and income tax on the gains).  Thus, the RothIRA is going to blow up the size of my taxable estate and thus I'll still be sharing it with all the masses in the end.

 

The only way I avoid the estate tax is to leave the country when I'm able to withdraw it all tax-free.  That would be age 59.5 unless these guys shift the rules on me.  The so called "exit tax" only hits unrealized capital gains.  But I would just be holding cash at that point.  Then I can take it to Australia, renounce my US citizenship, and enjoy the fact that there are no property taxes there on primary residence and no double taxation on dividends from Australian corporations.

 

There are no gift taxes there and no estate taxes -- they only tax the unrealized capital gains when such transfers of wealth happen.  But there won't be much to tax if I do that gift soon after I'm 59.5.

 

So here's a big middle finger to my present government if they turn it into my life mission to stiff them on inheritance taxes.  They'll get less in the end.

 

 

[Otsog]

If you cap divorce settlements at $3m where does any money exceeding $6m go?  The government?

 

The argument is usually that the wife deserves to be able to maintain her standard of living "to which she has become accustomed".

 

Well, billionaires and millionaires -- aren't they entitled to retirement spending "to which they have become accustomed"?

 

Hence, the $200k argument is suspect.

 

No, they aren't entitled to anything.  Divorce is the dissolution of a partnership agreement between two private individuals.  IRAs are a government handout with public money. 

 

Divorce settlement analogy just doesn't apply at all.

 

It was sloppy policy in the first place to leave IRAs uncapped.  That is so obvious, this really can't be a shock to anyone.  Capping was an inevitability.

 

Note to Canadians: TFSA's and RRSP's will 100% guaranteed have caps in the future.

[ERICOPOLY]

If you cap divorce settlements at $3m where does any money exceeding $6m go?  The government?

 

The argument is usually that the wife deserves to be able to maintain her standard of living "to which she has become accustomed".

 

Well, billionaires and millionaires -- aren't they entitled to retirement spending "to which they have become accustomed"?

 

Hence, the $200k argument is suspect.

 

No, they aren't entitled to anything.  Divorce is the dissolution of a partnership agreement between two private individuals.  IRAs are a government handout with public money. 

 

Divorce settlement analogy just doesn't apply at all.

 

It was sloppy policy in the first place to leave IRAs uncapped.  That is so obvious, this really can't be a shock to anyone.  Capping was an inevitability.

 

Note to Canadians: TFSA's and RRSP's will 100% guaranteed have caps in the future.

 

Read this to understand my point -- courts can rule that the wife deserves spousal support in line with the standard of living established during the marriage:

 

http://www.virginiadivorceattorney.com/blog/support-me-in-the-lifestyle-to-which-ive-become-accustomed-jeffrey-d-tarkington.cfm

 

 

[ERICOPOLY]

IRAs are a government handout with public money. 

 

Not as much as you'd think.

 

Once we had pensions, now we have IRAs.

 

Without the pension expenses, corporations report higher taxable profits!

[Guest valueInv]

If you cap divorce settlements at $3m where does any money exceeding $6m go?  The government?

 

The argument is usually that the wife deserves to be able to maintain her standard of living "to which she has become accustomed".

 

Well, billionaires and millionaires -- aren't they entitled to retirement spending "to which they have become accustomed"?

 

Hence, the $200k argument is suspect.

 

No, they aren't entitled to anything.  Divorce is the dissolution of a partnership agreement between two private individuals.  IRAs are a government handout with public money. 

 

Divorce settlement analogy just doesn't apply at all.

 

It was sloppy policy in the first place to leave IRAs uncapped.  That is so obvious, this really can't be a shock to anyone.  Capping was an inevitability.

 

Note to Canadians: TFSA's and RRSP's will 100% guaranteed have caps in the future.

 

Read this to understand my point -- courts can rule that the wife deserves spousal support in line with the standard of living established during the marriage:

 

http://www.virginiadivorceattorney.com/blog/support-me-in-the-lifestyle-to-which-ive-become-accustomed-jeffrey-d-tarkington.cfm

Just because a husband is obligated to support a wife's lifestyle doesn't mean the govt. is obligated to support yours.

[CONeal]

If you cap divorce settlements at $3m where does any money exceeding $6m go?  The government?

 

The argument is usually that the wife deserves to be able to maintain her standard of living "to which she has become accustomed".

 

Well, billionaires and millionaires -- aren't they entitled to retirement spending "to which they have become accustomed"?

 

Hence, the $200k argument is suspect.

 

No, they aren't entitled to anything.  Divorce is the dissolution of a partnership agreement between two private individuals.  IRAs are a government handout with public money. 

 

Divorce settlement analogy just doesn't apply at all.

 

It was sloppy policy in the first place to leave IRAs uncapped.  That is so obvious, this really can't be a shock to anyone.  Capping was an inevitability.

 

Note to Canadians: TFSA's and RRSP's will 100% guaranteed have caps in the future.

 

Read this to understand my point -- courts can rule that the wife deserves spousal support in line with the standard of living established during the marriage:

 

http://www.virginiadivorceattorney.com/blog/support-me-in-the-lifestyle-to-which-ive-become-accustomed-jeffrey-d-tarkington.cfm

Just because a husband is obligated to support a wife's lifestyle doesn't mean the govt. is obligated to support yours.

 

In both cases there is screwing going on.  So why would they not be obligated :-)

[ERICOPOLY]

If you cap divorce settlements at $3m where does any money exceeding $6m go?  The government?

 

The argument is usually that the wife deserves to be able to maintain her standard of living "to which she has become accustomed".

 

Well, billionaires and millionaires -- aren't they entitled to retirement spending "to which they have become accustomed"?

 

Hence, the $200k argument is suspect.

 

No, they aren't entitled to anything.  Divorce is the dissolution of a partnership agreement between two private individuals.  IRAs are a government handout with public money. 

 

Divorce settlement analogy just doesn't apply at all.

 

It was sloppy policy in the first place to leave IRAs uncapped.  That is so obvious, this really can't be a shock to anyone.  Capping was an inevitability.

 

Note to Canadians: TFSA's and RRSP's will 100% guaranteed have caps in the future.

 

Read this to understand my point -- courts can rule that the wife deserves spousal support in line with the standard of living established during the marriage:

 

http://www.virginiadivorceattorney.com/blog/support-me-in-the-lifestyle-to-which-ive-become-accustomed-jeffrey-d-tarkington.cfm

Just because a husband is obligated to support a wife's lifestyle doesn't mean the govt. is obligated to support yours.

 

The government isn't obligated to support mine.  I put the money in the account  The government put nothing into the account. 

 

I made a deal with the government where I agreed to pay my tax upfront for the Roth Conversion.  They agreed to it...

 

The arrangement is that if I then go on to lose 100% of the investment in the account, they keep my tax money -- I get no deduction or clawbacks for that.  So it's perhaps an even better deal for the government than for me in that regard -- depending on how things work out.

 

Some people really do lose money in their Roth IRAs.  But every now and then a person wins at the casino and walks out with a million dollars after putting only a dollar into the machine.

[SouthernYankee]

Re: Obama to cap tax-preferred retirement accts to $3MM

« Reply #25 on: Today at 11:56:10 AM »So, nothing... other than platitudes 

 

Kind of funny seeing a huge government hand-out program getting curtailed being attacked for being 'socialist'.

 

 

 

An individual setting aside their own money for their retirement is now considered a government hand out? Am I missing something here?

[Otsog]

Read this to understand my point -- courts can rule that the wife deserves spousal support in line with the standard of living established during the marriage:

 

http://www.virginiadivorceattorney.com/blog/support-me-in-the-lifestyle-to-which-ive-become-accustomed-jeffrey-d-tarkington.cfm

 

I understand your point.  It is a faulty analogy.  You have provided no argument as to why the entitlement from a partnership dissolution between private citizens should apply to a publicly funded handout. 

 

The '$200k argument' isn't an argument.  It is a flat out statement by the government saying the IRA programs intention is to provide pension funding assistance to those who need it, not to everyone with a pulse. 

 

[jk] Is it OWS round 2 in this thread? Why are all you hippies feeling so entitled to a free ride from the government? [/jk]

 

 

[Otsog]

Re: Obama to cap tax-preferred retirement accts to $3MM

« Reply #25 on: Today at 11:56:10 AM »So, nothing... other than platitudes 

 

Kind of funny seeing a huge government hand-out program getting curtailed being attacked for being 'socialist'.

 

 

 

An individual setting aside their own money for their retirement is now considered a government hand out? Am I missing something here?

 

Yes you are.  The part where you get tax breaks for setting it aside in a certain fund approved by the government.

 

[ERICOPOLY]

The key takeaway is that I paid the tax bill upfront.

 

That tax came out of my taxable account -- it was after-tax dollars.

 

As long as I would have (instead) invested that money the same as my RothIRA, then it would be largely enough to pay the tax bill due on my RothIRA.

 

So if they now force me to take an early withdrawal on my RothIRA for the amount exceeding $3m and tax me again on that, you ***** ****le Obama, that would be an entirely second tax on that income.

 

Tax me once?  Okay, that's fair.  Twice?  You go to ****.  So hopefully this will be taken into account and excess to date will be withdrawn tax free and penalty free for Roth IRAs.

 

[Otsog]

I made a deal with the government where I agreed to pay my tax upfront for the Roth Conversion.  They agreed to it...

 

See, there is where you made your mistake  ;)

[Guest valueInv]

The government isn't obligated to support mine.  I put the money in the account  The government put nothing into the account. 

 

I made a deal with the government where I agreed to pay my tax upfront for the Roth Conversion.  They agreed to it...

 

The arrangement is that if I then go on to lose 100% of the investment in the account, they keep my tax money -- I get no deduction or clawbacks for that.  So it's perhaps an even better deal for the government than for me in that regard -- depending on how things work out.

 

Some people really do lose money in their Roth IRAs.  But every now and then a person wins at the casino and walks out with a million dollars after putting only a dollar into the machine.

 

The govt. backstopped the money in your account. There was no agreement for that either. You would have lost close to 100% of your money in your IRA account if the financial system collapsed. And they had to spend a huge amount of money for that.

 

Now they want it back.

[ERICOPOLY]

The government isn't obligated to support mine.  I put the money in the account  The government put nothing into the account. 

 

I made a deal with the government where I agreed to pay my tax upfront for the Roth Conversion.  They agreed to it...

 

The arrangement is that if I then go on to lose 100% of the investment in the account, they keep my tax money -- I get no deduction or clawbacks for that.  So it's perhaps an even better deal for the government than for me in that regard -- depending on how things work out.

 

Some people really do lose money in their Roth IRAs.  But every now and then a person wins at the casino and walks out with a million dollars after putting only a dollar into the machine.

 

The govt. backstopped the money in your account. There was no agreement for that either. You would have lost close to 100% of your money in your IRA account if the financial system collapsed. And they had to spend a huge amount of money for that.

 

Now they want it back.

 

That's not a claim you can make for all IRAs.  Some people might have been invested in foreign stocks that were not at risk of collapse.

[SouthernYankee]

Re: Obama to cap tax-preferred retirement accts to $3MM

« Reply #44 on: Today at 01:26:12 PM »Quote Quote from: SouthernYankee on Today at 01:24:20 PM

Re: Obama to cap tax-preferred retirement accts to $3MM

« Reply #25 on: Today at 11:56:10 AM »So, nothing... other than platitudes 

 

Kind of funny seeing a huge government hand-out program getting curtailed being attacked for being 'socialist'.

 

 

 

An individual setting aside their own money for their retirement is now considered a government hand out? Am I missing something here?

 

Yes you are.  The part where you get tax breaks for setting it aside in a certain fund approved by the government.

 

 

 

-I don't get any tax breaks. I made an agreement with the government that this money, which I already paid taxes on, if I put them into a certain type of account, which is not available for me to use until a certain age, will then be income which will not be taxed.

That is a lot different than getting a tax break, unless you believe that the money is the government's and not mine. If you believe that, I will not argue with you, because I will not be able to change your mind, whatever I say.

 

Cheers!