John Ransom

President Barack Obama wants your money now. Like, right now.

Talking Points Memo has the details … breathlessly:

“A new provision in Obama’s budget ‘[e]nds a loophole that lets wealthy individuals circumvent contribution limits and [ac]cumulate millions in tax-preferred retirement accounts,’” Talking Points Memo wrote, quoting a budget summary released by the White House, which will reveal its new budget Wednesday.

I can’t wait!

OK, so basically, the guy chronically incapable of self-restraint when it comes to federal spending is going after people who save money for retirement by imposing a caps on IRAs. His argument will likely be that he’s only going after greedy IRA owners who have too much money anyway.

The question I’d pose to him would be: Between the government and folks with IRAs, who has too much money? But that’s beside the point.

Fact is that all the money in any IRA -- even Mitt Romney’s superstorm IRA -- will be taxed at some point or another. The whole IRA scheme is a way for the government to ensure that old folks pay a steady stream of income taxes to the government.

After all, the money in an IRA is not “tax-preferred,” as the White House asserts.

No surprise there that they got that wrong.  These guys aren’t CPAs. They don’t even know how to do their own taxes right.

Money in an IRA is rather “tax-deferred,” meaning the government is going to get their money one way or another -- it’s just going to take a while. 

In the end, in fact, the government will get more taxes, if they could only wait.    

Because the government actually requires IRA owners to spend down every single penny in an IRA. And when they spend it, taxes follow.  Being a government program, there are already stiff penalties for people who save too much in an IRA. Any money left in a million-dollar IRA is subject to immediate income tax, plus penalty, plus the death tax.

The taxable rate on an IRA of this size can easily approach 90 percent. Those are tax rates that we can only find in the wet dreams of French President Francois Hollande. 

And it’s that 90 percent tax rate that is the “loophole,” or “tax-preferred,” treatment Obama aims to get rid of.


John Ransom

John Ransom’s writings on politics and finance have appeared in the Los Angeles Business Journal, the Colorado Statesman, Pajamas Media and Registered Rep Magazine amongst others. Until 9/11, Ransom worked primarily in finance as an investment executive for NYSE member firm Raymond James and Associates, JW Charles and as a new business development executive at Mutual Service Corporation. He lives in San Diego. You can follow him on twitter @bamransom.

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