Bail-in and Retirement Dollars

Is Your Retirement Safe from the Government?

If you’re like me, you pay attention to a lot of the reports in various media outlets relative to retirement accounts, particularly IRAs and 401(k)s. There is a new series of articles out talking about how it is more likely than ever before that the federal government is eying different ways to close some of the “loopholes” that they perceive to be associated with various retirement accounts. Some of those “loopholes” are the concepts known as the “stretch IRA” and the “back door Roth IRA conversion.”

Between those two concepts, I expect to see Congress motivated to take action to shut down the stretch IRA provision first. When IRAs were first created in the late 70s, and when Roth IRAs were created in the late 90s, I don’t believe anyone really thought that individuals would be able to amass the amount of money that is now inside those accounts. Nor do I think that policy makers anticipated the longevity with which people would be able to keep the money in those accounts away from taxation.

Anyone who has looked at IRAs understands that the typical traditional IRA is pretty heavily tax booby-trapped. Much of the focus of any future reform will be with the Roth IRAs because tax experts understand that the IRS is going to get their hands on the money in traditional IRAs in the next twenty years. One possibility is that required minimum distributions will be changed to speed up the time in which a beneficiary has to deplete the money in an inherited Roth IRA.

There is an even bigger worry that I almost hesitate to put into print because of politicians borrowing the idea. You mix the concepts of bail-ins (think of the country of Cyprus) with 401(k)s and IRAs and you tend to get rather nervous. That nervousness increases when you realize that socialism is expensive, and one of the biggest needs of socialism is access to other people’s money so they can give it away. Well, retirement accounts are a huge source of other people’s money that our government might like to get its hands on to give away.

Before they go straight for the money, I think instead you’ll see efforts made to direct that certain minimum amounts of retirement account dollars must be “invested” in U.S. treasuries and other government-backed paper. That would be a horrible idea, and in my next post, I’ll share with you a couple of strategies I have for how to prepare for that kind of bad scenario.

By Jeff Watson

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