I think that @IxnayBob means not a contribution but assets. People can have hedge funds, venture capital investments, private equity positions in their retirement plans if properly administered. Those investments could only be made by accredited investors, I think, which means that many people would not have access to them. I’m not sure why that is the solution to the problem, as a well-timed investment inside an IRA in Microsoft or Apple or Wal-Mart would now be worth a huge amount as well.
And, what happens if the size of the assets inside the IRA exceed $3.4 MM? Do you have to do a withdrawal? Pay an excess profits tax?
Guess not. I looked into this a few months ago to transfer dividend yielding securities in my taxable account to roth and I thought there were exceptions to cash only contributions that I couldn’t take advantage of. I searched again in vain. All I found was in-kind transfers in roll-overs. laxyBob’s no private equity/art/land in ira’s will do the trick, too.
Transfer to tIra or withdraw? It will be a nontaxable event.
^ My question was directed at @Igloo’s comment, because my understanding is that contributions must already be made in cash. AFAIK you cannot transfer assets directly into an IRA, although that seems to be wrong based on what igloo said.
IMO a lot of the problems with the Roth could be solved by requiring distributions in the same manner as regular IRAs. And I think tax-free growth should stop after the death of the original owner and spouse. This would stop them from being used as estate planning tools, which is not their intent.
I don’t know how big of a deal self-directed IRAs are, which let you invest in real estate or whatever. Particularly with buildings, you lose the ability to take advantage of the tax breaks that are available, and (my understanding is) you have to tread a very fine line on how you participate in the management of the property in order to avoid violating the self-dealing rules. You have to hire a property manager to do everything - handle every little repair, pay the bills, find tenants, etc. And doing any kind of financing opens up a nightmare called “unrelated business interest tax”.
Collectibles such as fine art are already prohibited from being held in an IRA.
I wish I knew the details of how people are getting stock options into their IRAs. It would seem to violate the rules on self-dealing and indirect interest.
The difference is how easy it is to manipulate. Even Bill Gates can’t manipulate Microsoft stock an appreciable amount. However, if I have pre-IPO shares, I can value them at $0.01, but they’re not for sale to the general public at that price. I can put quite a few shares in my IRA. Lo and behold, post-IPO they’re worth $40. $5000 becomes $20M. Whee.
I’m not anti-capitalism. I’m pro level playing field.
Eta: and in my view, if someone hit it big in Microsoft stock: high fives all around. No shame in that.
The conspiracy theorist in me says this is a backdoor way for the govt to collect information on what everyone owns for IRAs, which AFAIK is not currently reported. They can’t tell if you exceed some limit unless they know what you have and where it is. Then, when SS needs shoring up (or any purpose, I guess), it will be much easier to confiscate everyone’s “excessive” IRA money.
There was a recent article in the NYT about how rich art owners build a “museum,” on or near their property, lend their art works, and allow visitors to the museum by appointment only. When you have millions, there’s always someone willing to find a way for you.
“The conspiracy theorist in me says this is a backdoor way for the govt to collect information on what everyone owns for IRAs, which AFAIK is not currently reported. They can’t tell if you exceed some limit unless they know what you have and where it is. Then, when SS needs shoring up (or any purpose, I guess), it will be much easier to confiscate everyone’s “excessive” IRA money.”
You know I’m onboard with that one, but I think that’s being a realist, not a conspiracy theorist. After all, that’s not really your money, it’s money they allow you to keep.
Why do I have a feeling that if they manage to get all these changes through (doubtful), that it will only affect the middle and upper middle class, people who have saved for decades. Both sides will still find a way to protect hedge fund managers, ultra wealthy donor and themselves, from any changes.
I like a conspiracy theory as much as the next guy, but there’s a much quicker and easier way to get that information: have it reported to the government by already established means (i.e., add it to the other information already electronically provided by the financial institutions). Even the notoriously inefficient government must be able to figure that out
For example, I have a self-directed IRA which I have invested in an LLC which invests in real estate. How does the custodian figure out a value to report?
Or an IRA contains stock in a non-public company. Etc.
Of course, requiring the owner of the IRA to self-value this stuff seems fraught with problems as well.
@notrichenough, well, when I become dictator, there will only be publicly traded assets in tax-advantaged accounts. No need to worry; I hear they’ve indefinitely delayed my ascension to the role.
ETA: I guess my rule would be: “if you can’t ‘mark it to market’, you can’t have it in a tax-advantaged account.”
So I know this is a little off topic, but does anyone have any suggestions for a “staging area” place to put a windfall before deciding what to do with it? This is money currently with a brokerage place that has performed terribly over all these up years, and charged a fair amount for that performance. It needs to be taken out of that place, possibly combined with other funds, and reinvested over the next several months to year. I’m looking for relatively conservative advice. TIA
I’d just park it in a money market fund somewhere that I have easy acess to–with a local bank or brokerage. Depending on your comfort zone, online banks provide slightly higher interest rates.
A very conservative investment that I like is where we put everything considered cash into. It’s called Vanguard Retirement Savings Trust II, and has a very stable 2-3% return. It’s halfway between a money market and a bond fund, only investing in very high quality, short term securities. Keeps the share prices at 1.00 and pays out the dividends monthly. They have several different versions of this fund, maybe up to number 8? I know some of them have high minimums, and some may be more institutional investments, however, this kind of fund seems like a good way to earn a decent return while not being locked into a fund.
@1214mom, it somewhat also depends on the size of the windfall (ie, don’t exceed FDIC limits with a bank). Our “staging area” for our annual windfall is a Vanguard Tax Exempt Money Market fund.
I think it’s good to have Vanguard (or whoever the eventual recipient of the funds is) manage the transfer. That way, you don’t get the retention talk and double-talk from the brokerage.
