Ixnaybob, that’s just the kind of suggestion I’m looking for. Thanks. Part of concern is exceeding FDIC limits.
The first thing that popped in my mind is that many people take their 401(k)/defined benefit lump sum amounts and put them into an IRA so that the person can get them our of the qualified plan and associated expenses/limited investment options. For someone who started contributing to a 401(k) at an early age, was covered by a DB and did Roth contribs when possible, it could be a perfect storm.
This proposed idea may expand the number of people who could be hit with an excess accumulations tax.
That just seems wrong to me, to hit someone with an excess accumulations tax for contributing, saving, and investing from a young age. I can see trying to stick it to the guys who are doing the fancy stuff that most people don’t have access to, but confiscating money because one has done too good of a job investing and saving? Someone who has been working hard and investing well could hit the proposed trigger before they are 50. I guess I should just encourage my kids to buy things instead of invest, instead.
@busdriver11, some of those good investors probably should consider putting more towards taxable accounts.
I have admitted before that tax strategies make my head spin. They really do, even before I get out to 4 decimal places. I like having a mixture of tIRA, 401k, Roth 401k, Roth IRA, and taxable to draw down/leave to heirs. I think this year for the first time we will have more in taxable than tax-advantaged, and that does not sadden me 
True, taxable accounts should be considered. However, for the person who doesn’t like to mess with it, likes the tax break off of their annual income, it can be easier to just get it all deducted from the paycheck and plop it in decent index funds, year after year. You don’t have to be too involved or investment savvy to do that. In fact, many of us do better when we aren’t paying attention, and just get it done via automatic mode.
^^yes – we do our saving (retirement and taxable) via payroll deduction and it is pretty painless that way. We tend to ignore what’s happening from day-to-day as well. Didn’t move anything after the 2008 crash. By that time we were paying tuition by then, so did not have extra $$ to buy in when the market was low.
Wish we wouldn’t have changed anything during the crash! Though we didn’t do that much, we’d be better off if we hadn’t gotten frightened.
How does tIRA fit into the mix? I haven’t been able to get the numbers to work out. Generally those only eligible for tIRA have a high enough income that would likely have built savings to yield a decent enough post-retirement income that’ll put their marginal tax rate well over cap gain rates. With something like an S&P 500 ETF like VOO even with the annual taxes, my regular taxable brokerage account always seems to win against a tIRA.
@Dadof3, Some years years ago, after I no longer worked for a paycheck, I rolled my 401k into an IRA to escape the limited and expensive choices there. I guess technically it’s a Rollover IRA, but as far as I know it’s treated like a tIRA, so that’s what I call it.
I expect, as you said, that our marginal rate will exceed the capital gains rate. I’m afraid that our marginal rate will be roughly what it is now. First world problem, but still.
I wouldn’t be in favor of an excessive savings tax, but I would be in favor of:
- after a certain point you may no longer make contributions to tax-advantaged accounts (IRAs, 401Ks, whatever other ones there are)
- after another point (2x the first point?) you must start taking RMDs immediately until the value falls back below this point.
GRATs (grantor retained annuity trust) are another area being heavily abused by wealthy people. They need reform as well IMO.
After reviewing company 401(k) fund choices (Through Prudential), we went from 4 holdings to 5; dropped International Stock Blend and under-performing large cap stock blend. Picked up a large cap stock value, large cap stock growth, and small cap stock growth. Stayed in a bond fixed income as a stabilizing account with 25% of assets.
After the Swiss have pulled back with their policy on bank monetary investing in Euros, that has had a destabilizing effect in Europe. I heard more news today about China economy not growing to predictions, and not a glowing international scene picture. Both the International fund accounts that Prudential has lost money in the 4th qtr 2014 and for year 2014. Between 1/1 and today, the one fund gained a little, from last year’s loss of 2.66% - however did better than the benchmark which lost 4.9% last year.
Our last year performance was 2.77%.
Our 2013 year performance was 25.87%. Super pleased about that.
Financial Planner Don was right about stabilizing effect of the bonds investment, which last year was 6.8% (benchmark was 3.12%). Missed the great performance of large cap stock value which had a performance of 10.57% last year (benchmark had 13.46%). That large cap stock value account had been holding pretty close to the benchmark in past years, with 5 year growth of 14.33%.
Pleased about growth from 2009. Additions have been about $90,000 (contribution and company match) but overall account growth total over 6 years has been from roughly $317,000 to $723,000 today.
Financial Planner Don has a ‘State of the Markets’ address at the end of the month. Then will look to schedule semi-annual update with him.
I even took the time to go through the Prudential Retirement Information - their education portion of the web site. They sprinkled some facts in like if a couple reaches age 65, 50% will live to 90 (they didn’t say if the couple or one would live to 90). S & P increased 110% from Jan 2009 to June 2014. 94% of baby boomers who work with an advisor have the savings for retirement, versus 64% that plan for themselves. Even though 39% of retirees and working age people say a key reason for retirement income is investing in mutual funds, but 25% currently invest in mutual funds.
There was a good little write up talking about having the money for extra retirement years (living longer), that you can’t delay saving for retirement, muse use the time value of money by saving early, use of fiscal discipline, having the money for a variety of interests in retirement, and with a longer life, a larger family which will enrich your life.
Staying motivated for the retirement you want. Some will have retirement lasting 30 years or more. Making better financial decisions.
I do have to post my displeasure about Obama suggesting raising capital gains taxes!
"I do have to post my displeasure about Obama suggesting raising capital gains taxes! "
Ah, it’s not so bad. I’m sure it won’t affect the ultra wealthy and the hedge fund managers, so that should make you feel better. Or not. If you’re a big enough donor, no doubt they’ll write something into the tax code for you.
The 1%'ers collect about 75% of all capital gains, with the top 400 taxpayers getting about 15% of the pie. I’m never going to have to worry about being in that bracket.
The much bigger piece is eliminating the stepped-up basis of capital assets at death. It used to be that this was offset by the estate tax, but since the exemption has been raised so high that almost no one pays estate tax, huge amounts of asset appreciation never get taxed. This would likely have a huge impact on my estate.
This proposal will never pass Congress, though. At this point, it’s all about posturing for the next election.
If you have trouble sleeping tonight, take a look at this analysis of issues surrounding taxation of capital gains:
http://www.taxpolicycenter.org/UploadedPDF/904606-Testimony-Capital-Gains.pdf
In an ideal world, capital gains would be against an indexed base and not the price you paid for the security. Then, it would be fair / appropriate to tax the gain from the beneficiaries’ taxes or charitable contributions.
@notrichenough I also heard about that proposal. Every time something is working out well, people have it figured out, want to get that tax bite in there.
Key for planning retirement is keeping up on all aspects as the paradigm changes.Don’t want to have ‘you don’t know what you don’t know’ bite you in the behind.
Posturing for the next election. Not as much as trying to get through all these ‘wonderful things for the American people’…sigh.
What also kills me is the IRS should be collecting from those that owe big back taxes (some of the loudmouths that act like they are ‘leaders’) - these people may have a payment plan going but I wonder if the enforcement of the IRS code has been applied. Not sure why the bureaucracy has gotten so built up within the IRS that it works so inefficiently. The IRS Commissioner warned about collecting less taxes owed? Why? Handle like A,B,C. Spend the time on the high accounts. It seems the IRS handles accounts the same way collecting $100 due as from someone owning six figures.
Apparently no one needs more than $3.4 million in retirement accounts (refer to the very last sentence):
@Madison85, I guess they didn’t read the memo that 4% is a safe withdrawal rate. Taking out 6-7% might end badly.
Add the way they tax interest income on hedge funds, dynasty trusts, and,… They are the real privilege only avaliable to the truly wealthy not “trust loop holes” imo.
Step up simplifies the cost basis calculation as well as the inflation. Eliminating it effectively treats any gain from assets held over many years equal to gain held just for a few years. Would that discouraging buy and hold? I’d think that affects the upper middle class more than the wealthy. Now that we are replacing traditional defined benefit plan with defined contribution, most retirees will be owning some stocks. Most may choose buy and hold index funds.
BTW you must be all genius. With the contribution limit to ira and 401k set at $5,500 and $53,000, respectively, I wouldn’t have thought one would get to $3.4 million so easily that that’s an issue.