Whose Money is it Anyway?
Research for Online Investors

by John Dalt

5/18/11

You may have an IRA or 401k.  Our premium services are for self manage investors, many of our customers are investing their retirement accounts.  Why do you have your money in a tax sheltered retirement account?  Was it for the tax savings when you made the contribution?  For the employer match?  The tax advantage when you take distributions?  The ability to pass it on as inheritance tax free?

I am not qualified to answer the legal questions, or give you advice concerning the best structure for retirement savings.  The questions we want to consider today are taxes, taxes on your current retirement savings and changes in the tax law that can adversely affect your future.

This may challenge the foundations on which you have predicated your retirement planning.  What happens to the value of your tax deferred retirement plan if a VAT is instituted?  You could come out a winner!  You deferred income taxes until withdrawal date, and then the income tax is partially replaced by a “consumption” tax.

In the case of a Roth IRA, you didn’t get a deduction for the contribution but don’t have to pay income taxes on the withdrawal.  But, you will pay any consumption taxes on your spending.

We marvel at politicians that equate a tax break with spending by the government.  This portrays an attitude that it all belongs to the government, and anything the government allows a taxpayer to keep is a 'gift.'

This summer we are faced with the most unpredictable wild animal known to man.  Politicians with a problem!  Popular opinion requires addressing deficit spending.  Economics requires they address the debt ceiling.  How can they do both, and wring their hands that “difficult decisions” had to be made?

There is an old joke about “Lock up the women and children, the legislature is in session.”  I suppose this originally was recognition of the sexual appetite of those who felt their position isolated them from the penalties exacted on the ‘little’ people.

In 1993, under the Clinton presidency, an idea was floated to enact a ‘one-time’ tax on all retirement accounts of 15% to help solve the government deficit. In 2008 as House Speaker, Nancy Pelosi suggested there should be a “Windfall Profits Tax” on stock market profits, including those held in retirement accounts and mutual funds.  She also supported a global ‘transaction’ tax on stock purchases and sales.

If you think they would never do that…you are wrong.  We have chronicled the current president’s intention to make the U.S. more like Europe.  How do the Europeans treat retirement savings?  Last year, Hungary took $15 billion in individual retirement accounts.  Actually, they forced savers to remit their funds to the state, if they ever wanted to collect a state pension.

Don’t be caught like this retiree in Budapest, Hungary

Poland wants one-third of any contributions to citizen’s retirement accounts diverted to the treasury.  Ireland pledged the $9.1 billion dollars in their public pensions to bailout the banks in 2009 and 2010.  France moved $46 billion in its national reserve pension fund that was earmarked for retirement payments in 20 to 40 years to current payments.  The French system just converted to money in-money out system.  The charade of assets to insure future payments is gone.

We marvel at politicians that refuse to endorse expanding off-shore deep-water drilling for crude, “because it will take ten years, it won’t help now.”  They have been saying this for fifteen years.  These are mostly democrats that don’t want the U.S. to be independent of importing foreign oil, actually that is not true.  They don’t want the U.S. to have cheap energy that would give our economy an advantage on the world.  It is too hard to control a population that is fiercely independent and confident.

It is better to hamstring our economy with regulations and expensive energy.  Then the government can answer our cries for help with more regulations to ‘fix’ the problems they have caused.

The thing that has bothered me for the last couple of weeks, I hear republicans saying the same thing about a “balanced budget” constitutional amendment.  They say, “It won’t help immediately, it will take a few years to be ratified.”  To them I say “Ok…but can’t we get started?”

There was a line in an old western movie, “Nothing concentrates the mind, like a public hanging.”  Don’t you think a constitutional amendment making its way through state legislatures would concentrate the mind of more than one U.S. Senator or U.S. Representative?  Maybe, just maybe, even the President!

Don’t hold your breath.  The reality is…most politicians and many citizens don’t want a government they can afford.  They want all the services, protections and restrictions on their neighbors they can dream of.  And there lies the problem.  Our caution; be prepared to close your retirement account within a few days…before Uncle Sugar can take his ‘fair share.’

Also, to our friends in Washington, D.C.  If you write a Balanced Budget Amendment, it should have only one allowable exception for deficit spending.  “If the U.S. is invaded, and congress declares war, the government may borrow money upon a 2/3 vote of approval by the House of Representatives and the Senate.”

That should tie their hands.

Quote:
The officer of every corporation should feel in his heart—in his very soul—that he is responsible, not merely to make dividends for the shareholders of his company, but to enhance the general prosperity and the moral sentiment of the United States.—Adolphus Green  founder, Nabisco

The mailbag:
Poor BP, left to only trusting the Russians.---Long-Term portfolio G.O.

I am a UK resident and would like to know if you are aware of UK equivalent accounts to an IRA or 401k in U.S.---subscriber T.W.

John’s reply:  I would suggest you talk to a Financial Advisor or Brokerage.  They should be able to help you.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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