View Full Version : IRA/401k Treasury conversion
If you have, or expect to have, an IRA or 401k, you might wish to consider this development. In essence, it appears that the U.S. Treasury may begin an effort to encourage those with retirement accounts to switch their holdings into treasury securities. This has the potential to become something distinctly unpleasant. In addition, it may provide a warning of more adverse events to come.
LINK (http://market-ticker.org/archives/1830-401kIRA-Screw-Job-Coming.html)
This is so wrong on all points.
I hope this is a figment of Denninger's youthful and exuberant imagination,,
Never to see the light of day.
I share your sentiment - however, if one looks at the link embedded within the article, the games does seem to be afoot.
On the one hand, the Investment Company Institute seems to have skewed the question to something more serious than was the proposal. On the other hand, the statement "...ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams..." does NOT sound good.
LINK (http://www.businessweek.com/news/2010-01-08/americans-oppose-initiatives-limiting-401-k-choices-ici-says.html)
Jan. 8 (Bloomberg) -- U.S. investors oppose federal initiatives that would force them to give up control over their 401(k) accounts, the Investment Company Institute said.
Seven in 10 U.S. households object to the idea of the government requiring retirees to convert part of their savings into annuities guaranteeing a steady payment for life, according to an institute-funded report today.
“Households’ views on policy changes revealed a preference to preserve retirement account features and flexibility,” the institute, which represents the mutual-fund industry, said in the report.
The U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry, who are spearheading the effort.
The institute’s member companies manage $11.6 trillion of assets in mutual funds, including employer-sponsored 401(k) accounts. Some lawmakers have questioned the public-policy value of the tax benefits for people investing in retirement accounts, the ICI said in a report today.
The average 401(k) fund balance dropped 31 percent to $47,500 at the end of March 2009 from $69,200 at the end of 2007, according to a Fidelity Investments review of 11 million accounts it manages. The Standard & Poor’s 500 Index tumbled 46 percent in that period. The average balance of the Fidelity accounts recovered to $60,700 as of last Sept. 30 as the stock market rebounded.
Senator Herb Kohl, chairman of the Senate Special Committee on Aging, proposed legislation on Dec. 16 to require fund companies to do more to ensure 401(k) options are appropriate for workers. The Wisconsin Democrat cited reports that target- date funds designed for people retiring in 2010 invested in high-yield, high-risk corporate bonds.
Representative George Miller, a California Democrat, is advocating legislation to require more disclosure about 401(k) fees paid by investors. The Education and Labor Committee, which Miller leads, approved a bill requiring more disclosure about fees in June.
The ICI survey was based on a telephone survey of 3,000 households from Nov. 20 to Dec. 20 and had a sampling error of plus or minus 1.8 percent.
“Cry 'Havoc', and let slip the dogs of war, that this foul deed shall smell above the earth with carrion men, groaning for burial” W.S.
Surf n Turf
01-08-2010, 17:46
If you have, or expect to have, an IRA or 401k, you might wish to consider this development. In essence, it appears that the U.S. Treasury may begin an effort to encourage those with retirement accounts to switch their holdings into treasury securities. This has the potential to become something distinctly unpleasant. In addition, it may provide a warning of more adverse events to come.
LINK (http://market-ticker.org/archives/1830-401kIRA-Screw-Job-Coming.html)
Nmap,
Read the article earlier, and it puts me (and I suspect a lot of others) in a quandary.
If you leave your IRA / 401k in place, the “government” will certainly try and convert the funds to “government bonds” or annuity.
Conversely, if you cash-out your funds, then you are subject to a +/- 40% tax as ordinary income – which effectively reduces your retirement funds significantly.
An example: Let’s suppose you have $100,000 in a self-directed IRA. If you decide to cash-out the funds, you add $100,000 to your “ordinary income” and fall into the 38% tax bracket. Than means that you have to pay an additional $38,000 in taxes on your IRA withdrawal, leaving your “retirement account” with a balance of $62,000.
So – if you are receiving interest income on your IRA (Lets assume 6% over long term) you would have the following results:
Leave you account alone: $100,000 x 6% = $6,000 interest
Cash-out your account: $62,000 x 6% = $3,720 interest
So, by taking your funds “out of government control” you would (in this example) LOSE $2,280 annually.
Comments?
SnT
Nmap,
Read the article earlier, and it puts me (and I suspect a lot of others) in a quandary.
If you leave your IRA / 401k in place, the “government” will certainly try and convert the funds to “government bonds” or annuity.
Conversely, if you cash-out your funds, then you are subject to a +/- 40% tax as ordinary income – which effectively reduces your retirement funds significantly.
An example: Let’s suppose you have $100,000 in a self-directed IRA. If you decide to cash-out the funds, you add $100,000 to your “ordinary income” and fall into the 38% tax bracket. Than means that you have to pay an additional $38,000 in taxes on your IRA withdrawal, leaving your “retirement account” with a balance of $62,000.
So – if you are receiving interest income on your IRA (Lets assume 6% over long term) you would have the following results:
Leave you account alone: $100,000 x 6% = $6,000 interest
Cash-out your account: $62,000 x 6% = $3,720 interest
So, by taking your funds “out of government control” you would (in this example) LOSE $2,280 annually.
Comments?
SnT
Your correct,, IF you are primarily invested in bonds and treasury notes,, BUT if this happens you will not get 6%,, more like 2%
I do mine own investing,, I am not school trained,, just inquisitive,, I win & lose, dropped 50% on the 2001 fall,, rebuilt and lost another 60% this time,, but I'v recovered 50% of the loses. Last year I netted 28.76% growth,, not the best,, but I beat the market..
I retired in 95 and rolled over my 401k into an IRA. In 15yrs I have 10 times more than I started with,, and that's after the fall(s).. Was I lucky,, probably.. Can I do it again,, why not..
I'll play my luck rather than let Barry steel my savings to pay for his Wealth Redistribution Plan..
Surf n Turf
01-08-2010, 18:21
Your correct,, IF you are primarily invested in bonds and treasury notes,, BUT if this happens you will not get 6%,, more like 2%
I do mine own investing,, I am not school trained,, just inquisitive,, I win & lose, dropped 50% on the 2001 fall,, rebuilt and lost another 60% this time,, but I'v recovered 50% of the loses. Last year I netted 28.76% growth,, not the best,, but I beat the market..
I retired in 95 and rolled over my 401k into an IRA. In 15yrs I have 10 times more than I started with,, and that's after the fall(s).. Was I lucky,, probably.. Can I do it again,, why not..
I'll play my luck rather than let Barry steel my savings to pay for his Wealth Redistribution Plan..
JJ_BPK,
I also do my own investing. Some with IRA funds.
I also have been “lucky” with my investments, but am concerned with exiting my “sheltered” investments. The taxes alone would decrease my investment pool by 25%.
I do not own any bonds or T-notes, as I think most are poor investment choices.
I will burn my money before Øbama gets one penny. I’m just looking for the least painless way to move cash. ;)
SnT
The Reaper
01-08-2010, 18:36
Precious metals and commodities are looking better and better.:rolleyes:
TR
I’m just looking for the least painless way to move cash. ;)
SnT
Me too,, I started two yr ago, moving out of the ira's,, but it's slow work,, if you want to avoid the tax..
:mad:
Comments?
SnT
I think JJ_BPK's comments are right on target.
That said, this is not so much a call for action as it is a heads up - it's something to watch as the situation develops.
We also might be excused for wondering whether this might be a manipulation to cause people to pull their money out and pay the tax, thus bumping up federal tax revenue.
So I, personally, will leave everything in place for the time being. But I will be alert for changes and developments.
Surf n Turf
01-08-2010, 21:11
Precious metals and commodities are looking better and better.:rolleyes:
TR
TR,
So I’ve heard tell :D :D
SnT
I think JJ_BPK's comments are right on target.
That said, this is not so much a call for action as it is a heads up - it's something to watch as the situation develops.
We also might be excused for wondering whether this might be a manipulation to cause people to pull their money out and pay the tax, thus bumping up federal tax revenue.
So I, personally, will leave everything in place for the time being. But I will be alert for changes and developments.
nmap,
Agreed, but I’m still working on plan ”B”, and maybe a quick trip out of Dodge. ;)
SnT