April 12, 2013
It happens to me almost every presentation. Someone from the audience raises their hand during a seminar on self-directed IRAs and asks, “What is the likelihood that the government is going to take away my IRA?” Or, “will my Roth IRA indeed never be taxed again, or will Congress change their mind later when they are desperate for more revenue?”
Until this past week, I dismissed those conjectures as needless concerns from conspiracy theorists. Until the headline “Obama wants to put $3 Million Cap on IRAs” was found on the front page of the local paper. Maybe there is something going on that we need to pay attention to…
Now, of course, the political approach of making such a drastic move is first to reassure everyone that this will only target the rich, not you or I. And there is a slight inference that no one can gather such a large IRA together without some unfair advantage and extreme good fortune. In the article, recently failed GOP Presidential candidate Mitt Romney’s $100M IRA was trumpeted as the perfect example of how a large IRA is created based on insider knowledge and understanding tax law nuances.
Regardless, the rest of us in much lower tax brackets should be a bit uneasy. IRAs were created to help individuals have a shot at creating a retirement for themselves that industry and government had no stomach or ability to provide. Now over 47 million households have them, with almost $5 Trillion saved for retirement. It’s not unexpected that the government is eyeing those accounts with a great deal of interest, impatient for the tax revenues that will only come upon personal distribution of those largely pre-tax assets.
But wait, this won’t affect me – or anyone I’m likely to know. $3M is a huge IRA and not likely to be amassed by an ordinary person. Not true. For example, a person can, through a SEP IRA, contribute up to $51,000 annually. Through consistent savings and wise investing – many choosing a self-directed IRA, it is not impossible or even improbable of achieving a large balance in your IRA. We certainly have clients that would be taxed under this potential plan.
The concept of charging a tax on an IRA account which was created in the first place to provide a tax shelter to encourage savings is flawed policy. A bad idea is equally as bad regardless of whether or not it affects you or I.
Balancing the budget is something that both sides of the political aisle proclaim to be important for the future of our country. Doing it by taking it directly from retirement plans that were pledged never to be taxed is wrong.
Who knows, are Roth IRAs next?