I just read an article from Fox News on Bush’s new proposed tax-advantaged savings accounts (see http://www.foxnews.com/story/0,2933,110695,00.html). It covers Retirement Savings Accounts (RSAs), Lifetime Savings Accounts (LSAs), and Individual Development Accounts (LDAs). It does not mention Health Savings Accounts, which have exceptional tax-benefits (no taxes) for medical purposes.
I support all of these accounts except for Individual Retirement Accounts. All of the other accounts provide loopholes, which allow us to avoid some taxation. So, too, does an IDA, but it also mandates more taxation and/or inflation. Here’s how an Individual Development Account works.
If you have an adjusted growss income of $20,000 or less, you can contribute $500 to the IDA. The government-approved agency or financial institution sponsoring the IDA then matches your contribution of $500, giving you $500. That agency is then reimbursed by the government. So, what does that mean? Basically, more taxes, more inflation. It’s welfare for the lower-middle class disguised as a savings plan and tax loophole.
I must say, my first reaction to this was positive. After my $13k contribution to my 403(b), I’m eligible for that. However, to participate in such an account amounts to nothing more than stealing from those who are the net tax-payers in that situation. This aggregious immoral aspect could be fixed, however, if the proposed legislation would be changed slightly. If you change the legislation so that institutions matching IDA contributions get a dollar-for-dollar tax reduction (e.g., their taxes, not their taxable income, are reduced by $500). This does not mandate thievery and robbery.
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What bugs me is that RSA are going to replace, IRAs, and IRAs then are going to be frozen.
I would very much like to take advantage of LSA’s if they get ennacted. But how am I suppost to know if the tax laws will stay the same 10 years from now? That’s 2+ presedential ellections away. How do I know they won’t try to close “loopholes” because people are actually taking advantage of them?
I think this is the very reason the founding fathers equated democracy with chaos. Rules continually change so nobody knows how to get ahead. Because market conditions never evolve to act on new laws, because by the time they do the laws have changed, it devolves into criminal anarchy.
Anyway, that’s my concern.
Tracy
Tracy,
Well, the fact that IRA’s will be frozen won’t matter unless you want to invest in a Traditional IRA. This, I presume, is where you concern comes in. In a Traditional IRA, you get a tax-deduction for the contribution (the contribution reduces your taxable income). Thus, the tax-advantage of the Traditional IRA has already been taken advantage of, and can’t be stolen from you.
What I presume you’re worried about is that The State will retroactively eliminate the tax-advantage or the LSA/RSA, which is that money in them, while taxed initially, grows tax-free and will not be taxed when it is taken out. This is a valid concern, but I think that so many people will be investing with LSAs/RSAs that it will be politically very difficult to eliminate the tax-advantage retroactively. Any politicians who supported that would also likely (hopefully) be in mortal danger as well, which might discourage that kind of retro-activism.
However, the concern is still valid, and it’s a risk you have to decide on. To address that risk, I would suggest that they leave open the possibility to use an RSA in either a Roth-like or Traditional-like manner. At any rate, it wouldn’t be the first time that our The Leviathon State has retroactively changed the rules of the game. There’s social security taxes, the 1998 Copyright Extension Act (which retroactively extended copyright terms), and so-on and so-forth. Ultimately, it should never be forgotten that the criminals in The State can largely do what they want, so long as not opposed by eachother. They have tanks, airplanes, napalm, and bombs. We have hand-guns.
Any more news on this? Is Bush actually going to impliment LSAs?
It would be neat if he did. I mean, I have some long term projects that I need to save for but they’re only about 5-10 years out. I can’t use IRAs for that! (I’m only 25) Or is this just another piece of retoric he used to throw a bone to conservatives.
Tracy
Tracy,
I believe that it looks like they should (not necessarily will) get through. See Lifetimesavings.com. In the event that it doesn’t pass, there will at least be a Roth401k that will be in effect in 2006.
Thanks,
What’s the Roth401k?
Tracy
Retirement done right. Or is it? You can pay now and save later with a Roth 401(k). The new Roth 401(k) retirement plan is basically a traditional 401(k) that is not bound by income thresholds, and is supplemented with the Roth IRA benefit of tax-free growth and withdrawals.
Roth 401(k) plans become effective January 1, 2006, and will allow you to contribute after-tax earnings into an employer 401(k). The contributions you make will grow tax-free, forever. When you make withdrawals from a Roth 401(k), you will owe no tax. None. Is a Roth 401(k) right for your retirement? You make the choice.
http://roth-401k-forum.com
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