What's the general opinion on IRAs?

[AJ Antimony]

My uncle keeps talking about his IRA and how much money he's lost in it this past year. However at the same time, he says the best thing to do is to leave the money in the IRA, having faith stocks will rebound and that the company he's with will again be able to get him a lot of money. He cites typical MSM economists that say you should leave your IRA alone.

Then comes me and my free market, Schiff-like doom predictions, and he assumes I'm telling him by that to take his money out of the IRA. I thought about it and don't really know what he should do. I tried googling for the Austrian suggestion on IRAs and couldn't find a clear answer. My guess is that Austrians would suggest to get out of the IRA. Is this right?

[WRellim]

IRA's are simply "locked-up" savings accounts with tax deferral features. Saving money (liquid assets) is always a good idea. Saving money on (or from) taxes is also normally a good idea (with a caveat**).

HOW your IRA money is actually invested is a different story -- they can be in mutual funds, individual stocks, bonds, money markets, even gold & silver (via ETF's) -- each with their own risks and rewards.

From the perspective that IRA's are "savings accounts" they are as safe as any other form of monetary savings; if they are invested in mutual funds, stocks or bonds then they are just as vulnerable as any other similar non-IRA investments.

The IRA aspect simply changes WHEN you pay taxes -- the IRA allows interest to be accumulated without paying taxes on the earnings (although this also has the drawback of meaning that when losses occur -- such as this past year -- those losses cannot be deducted from your taxes either).

**The Caveat -- because the BIG questions with IRA's (as even more so with 401K's) are:

1) The first is whether you believe *your* taxes will be higher or lower in the future (when you eventually take the money out). If you think Obama & Cabal will decrease taxes on lower and middle income people (and that they will STAY lower until the time you retire/withdraw) -- then it makes logical sense to leave it in the IRA/401K in some form. If you think they will RAISE taxes, then it makes sense to get the money out. If you are uncertain then it might be wise to play "both" sides of the fence; take some out, leave some in (i.e. 50/50 or 80/20 or 20/80 depending on your opinion of chances for each). Like any other form of gambling, hedging your bets (i.e. betting on both Red AND Black on the craps table -- means you probably WILL lose some money {or make less profit}; but less than if you choose one OR the other and pick incorrectly) -- but that's just diversification in action.

2) The second question is whether you think the government will (sometime in the future) use the IRA/401K deferral status to "seize" or "confiscate" said funds and "roll" them over into some combination with Social Security and failed pensions -- thus removing them from your control. (This *used* to be considered totally, entirely, crazily "unthinkable" -- but Congress has already begun "thinking" about it and even had presentations on it in 2008 -- so apparently it's not as unthinkable as it once was. And, as we have seen this past year, in the midst of "crisis/opportunity" a lot of things that were "unprecedented" even "unthinkable" -- involving huge sums of money and dramatic changes in policy and laws -- can suddenly "happen" with a speed that can make your head spin, and a deafness to popular sentiment that is inexplicable.)



In my personal opinion, the government "seizure" and "combination" of all retirement funds is inevitable -- not so much so they can confiscate the actual money itself -- but in order to PREVENT a full-scale "run" on the entire stock/bond market, and sold as the way to "save" people's retirements & pensions from the nasty ravages of "the free market." (When Pat Robertson starts endorsingthe concept of socialism as a good thing, he is signalling that the GOP will join hand with the Dems in a "bipartisan" fashion to sell this to the public.)

Currently the vast majority of the public (like your uncle) are still accepting the "buy and hold" line of thought, as people hope and pray for the market to come back up. If the market takes another steep dive (and loses say another 30% or so) then the general public will begin pulling their money out in droves; and the government will clamp down FAST.

IMO the recent change "suspending" the 401K required withdrawals for the already retired is a signal that they WANT the money to stay in the market and are afraid of a run -- rather than a "banking" holiday, I would expect that there will be a 401K anti-change holiday, during which time span they will pass "surprise" legislation that rolls the whole retirement works together into some new "package" that has "guaranteed returns" but also has government controls, and rationed withdrawal limits.

Furthermore, I think it is entirely possible that this will be done within the first 100 days of the Obama administration, and the vast majority of the population will welcome it, as long as it come with some type of gift/bribe/bailout of additional funds being tossed into their "accounts."


But that is all just personal speculation.

(But on the one hand, it is much like the speculation on my part that the market had peaked when I got everything out last Winter, and then shorted [albeit cautiously] the market this summer, expecting that the Dow was going to lose substantial value. Or the fact that I have long felt that --- when push came to shove -- the Fed would inflate on a massive level if housing ever popped {because too much of our FIRE economy, not to mention state & local tax revenues are reliant on high Real Estate asset prices}. On the other hand, like Peter Schiff, I speculated WRONGLY that PM's would hold their value -- which they have -- but I did NOT anticipate that PM's would take a roller-coaster "dip" this fall.)

Knowing WHAT the lunatics running the asylum are likely to do is one thing -- timing WHEN they will do it is something else entirely. (And I think the volatility in everything -- the market, PM's, oil and other commodities, etc -- is a sign that no one else knows WHEN either.)

[LibertyEagle]

Ron Paul mentioned that he did not see this happening. At least anytime soon. FWIW.

I'm still concerned though.

[Truth Warrior]

Oh thank you most kind, generous and munificent STATE for ALLOWING me to keep SOME of MY money.

[slacker921]

WRellim has very valid points.. .. and.. there's another thing to consider... tell your uncle to go look at the charts from the Great Depression and realize that we are NOT at the bottom - there is still a lot of unwinding yet to happen in the housing and commercial real estate market. There are still a lot of jobs to be lost. AND in the Great Depression the US had a manufacturing base and the people could provide for themselves through farming and cottage industries. We have far more debt this time around. We're in a very, very different situation now and it could take much longer for the US to come out of the collapse.

This means that for your uncle's stocks to get back to 100% value it might well take decades.. does he have that long? (edited to add... and he might say we're already almost at DOW 9,000 so we could recover by Fall of '10 --- his stock might be worth the same dollar amount by then or maybe even more but for that to happen our dollar will have devalued significantly so that same dollar amount won't buy as much imported goods)

One compromise is to roll that IRA into a setting that he can control.. he could put it into a brokerage where he can diversify into some currencies and markets that might recover faster than the US. That's what Schiff is suggesting - put it into EuroPacific where an adviser will likely suggest it be invested in Singapore, China, Japan, etc.. you can do that through eTrade or other brokerages too.

[Truth Warrior]

[Anti Federalist]

IRAs are self directed.

You can put your money into anything you want, including gold.

For a young person, starting out, a Roth IRA is the best choice.

Post tax dollars so there is no short term deferral, but everything you make within the Roth is completely tax free at the other end.

[WRellim]

I think the only way for stocks to get back to their "peak" values will be via super-inflation (double digit but under 27%) or hyperinflation (over 27% APR). The former is almost a certainty now, with the latter a definite possibility.


But even the TAMEST alternative will see food and other commodity prices skyrocketing -- with wages and contracted prices following after in a delayed fashion.

I say a CERTAINTY because it is in the government's best interest to "inflate away" the massive debt that they hold (and which increased significantly -- nearly doubled -- in 2008, with yet another doubling likely in 2009). They will then have to "turn the tables" -- facing a choice of either raising interest rates and accepting a massive depression (unlikely); to literally default (VERY unlikely); or to hyperinflate & play "catch" on the other side with a new replacement monetary system -- effectively wiping out everyone's debts AND savings at the same time (and risking total chaos... but I think this LAST option is likely to happen simply because of HUBRIS; they THINK they know what they are doing and they THINK they can throw it into reverse but just as they "misjudged" the timing AND impact of the current problem, I cannot seem them suddenly becoming that much better at TIMING the correction AND the degree exactly -- and failing to hit it "spot on" in both time AND degree will produce massive consequences.)


As to the likelihood of the "confiscation" (or "rollup") of the retirement programs -- I think it relates DIRECTLY to people's fears of another "gold confiscation."

IMO, there is virtually ZERO chance of a gold confiscation because gold is not MONEY anymore.

The risk back in 1933 was that people would do a full-blown "run" on the banks and demand GOLD COIN -- and the Fed did not have enough gold coin on hand to cover the notes they had papered the country with during the 1920's. At the time VIRTUALLY no one expected FDR to do what he did -- it was entirely unprecedented, entirely illegal, literally "insane," and completely the OPPOSITE of what he had promised during his election campaigning. Likewise with his subsequent DEVALUATION of the dollar. (Despite what the idiot economists state, the dollar had maintained nearly the exact same value versus gold [and for nearly a century, silver] SINCE THE COUNTRY WAS FOUNDED.)

Yet FDR did it, and he got away with it... mainly because of propaganda via the (nascent, rather crude) mass media of the time ... radio (and newsreels).


Now consider the amount of propaganda we have had during the recent months concerning how CRITICAL the "Big 3" automakers are to our country (and especially that their costs of production are being HAMPERED by their "retiree burden"); add in the fact that EVERYONE is concerned with the loss of their 401K valuations; and throw in the DECADES worth of "concerns" over the Social Security insolvancy, the whole "lockbox" baloney, etc. Finally, throw in the decades worth of "selling" everyone on the need for "universal healthcare" the preservation of MediCare, etc.

Now I can EASILY see that one way -- probably the "best" way (and perhaps the ONLY way) -- that they can "package it all up" and sell the public on a "NEW New Deal" is the following:

1) They gain the backing of the major corporations by allowing them to "turn over" responsibility for their retirees.

2) Get the backing of the UAW and other major unions by allowing THEM to "turn over" their responsibility for retirees pensions (and allow them to toss overboard all of the 401K matching programs and even the health insurance as well -- I know MANY business owners who are looking forward to this already -- they WANT "universal healthcare" so they can stop dealing with the current mess & escalating costs).

3) Gain the backing of the States AND the government employees throughout the country by rolling up and "guaranteeing" the various State and Local government employee pensions -- which have all LOST substantial equity this past year (think CALPERS, etc). Add in as a "kicker" some budgetary "assistance" to help the states out of their deficit problems and they will ALL fall in line, and hit the airwaves in support of this great "solution."

4) Gain the support of the general public as well -- by promising them that this is THEIR BAILOUT money as well; and add in that it will be a solution to Social Security, Universal Healthcare, etc -- and then add in the "kicker" that this will "come out of the hide" of the rich and those nasty banksters that we just "saved"; and thus getting back the "value" for the citizens on the "investment" that we have all so recently "made" in their firms.

Oh yeah... people are stupid... in general, most people are THAT stupid (if not even stupider).

And just like everyone bought into the new deal bull$#@! of FDR...

Just like half of the people (probably MORE than half) bought into the vague "change" that Obama has promised.

So the vast majority will buy into whatever policies and programs are cooked up that will "save" our economy -- "save" our retirement funds -- "save" our healthcare, etc.


And here is the key -- people will NOT be told the specifics -- they will not understand what is going to happen to their 401K's and IRA's ... they will simply be told & sold on the "benefits" side of the equation; and they will only learn the "costs" side (loss of control) AFTER it is a fait accompli. (After all, you really can't expect that they will give the general public any more warning of this than they did to the CEO and board of WaMu before the Fed took their company away... and they have proven, with the bailout, the Patriot Bill, etc that the general public can be sold virtually ANY piece of swill AFTER THE FACT.)

In other words... if you're expecting some "advanced warning" -- you're very naive.

[theoakman]

if you trust the government not to change the tax rules before you retire, than an IRA is great. The big disadvantage is the limit on what you are allowed to contribute. Personally, I just buy physical silver. There is no limit and the government doesn't keep track of what I buy. And if I ever sold, I would just go sell to local shops and not report the income. Of course, that's tax evasion, but I wouldn't feel guilty. This is the most fiscally irresponsible government in the history of the world and they don't deserve the money they collect.

[Danke]

If the government can get away with eminent domain, I guess there is a argument they can confiscate other personal property.

But I find it highly unlikely. Why would they stop with IRAs? Why not all investments? Why just tax deferred ones?

WRT to myth of Gold confiscation, one needs to understand the Executive Branch's power (or lack thereof) over private citizens.

NOTE: Stated within a written document received September 17, 1997, from the U.S. Department of Justice, Office of Legal Counsel, Office of the Deputy Assistant Attorney General, Richard L. Shiffin, in response to a FOIA, was the following:

"A fact that is frequently overlooked is that Executive orders and proclamations of the President normally have no direct effect upon private persons or their property, and instead, normally constitute only directives or instructions to officers or employees of the Federal Government.
The exception is those cases in which the President is expressly authorized or required by laws enacted by the Congress to issue an Executive order or proclamation dealing with the legal rights or obligations of members of the public. Such as issuance of Selective Service Regulations, establishment of boards to investigate certain labor disputes, and establishment of quotas or fees with respect to certain imports into this country."

NOTE: IT SEEMS RATHER OBVIOUS THAT PRESIDENT FRANKLIN D. ROOSEVELT WAS NOT "EXPRESSLY AUTHORIZED OR REQUIRED” TO "ISSUE AN EXECUTIVE ORDER OR PROCLAMATION" DEMANDING THE PUBLIC (PRIVATE) TO RELINQUISH THEIR PRIVATELY HELD GOLD.

[theoakman]

government can't confiscate what they don't know you have. Metals are a terrific store of a value in an extremely small volume. They can easily be hidden. Government confiscation will be futile in confiscating the wealth of the private citizen who has possession of his metals. The only way they can get them is if you store them in a bank or if you go and spend it. They won't be searching people's houses for gold/silver coins. The labor in doing such a massive confiscation would cost more than the gold/silver that they would bring in.

[Brian4Liberty]

An IRA is a tax (and paperwork) shelter. You can buy and sell without all the annual tax hassle. You can invest in almost anything in an IRA.

If personal income taxes were elliminated, there would be no need for IRAs.

[Fox McCloud]

you could also put your money in CDs, but I don't believe they are sheltered from taxation...

[Brian4Liberty]

you could also put your money in CDs, but I don't believe they are sheltered from taxation...

You can invest in CDs in IRAs.

[theoakman]

You can invest in CDs in IRAs.

yes

[WRellim]

An IRA is a tax (and paperwork) shelter. You can buy and sell without all the annual tax hassle. You can invest in almost anything in an IRA.

If personal income taxes were elliminated, there would be no need for IRAs.

A tax SHELTER is something entirely different.


IRA's are a system of (partial) income tax DEFERRAL -- you will have to pay income taxes on it eventually (and amounts put into IRA's are already taxed for FICA and Medicare -- aka payroll taxes). This means that for low income people they are actually a fairly piss-poor deal (because they likely pay little-to-nothing in income taxes NOW, but in years to come will be paying HIGHER taxes on it when they eventually withdraw the money.)

[AJ Antimony]

Hmm very insightful, thank you everybody!

[Fox McCloud]

I always figured if someone won "big" on the lottery, it would be more logical for them to break the money down into $250,000 increments and just keep putting it in 1 month CDs at various banks...and live off of that money.....*shrug*.

[Brian4Liberty]

A tax SHELTER is something entirely different.


IRA's are a system of (partial) income tax DEFERRAL -- you will have to pay income taxes on it eventually (and amounts put into IRA's are already taxed for FICA and Medicare -- aka payroll taxes). This means that for low income people they are actually a fairly piss-poor deal (because they likely pay little-to-nothing in income taxes NOW, but in years to come will be paying HIGHER taxes on it when they eventually withdraw the money.)

You are correct. "Shelter" was the wrong word to use. Thanks for adding details...

Even more detail: "Roth IRAs" are preferrable to traditional IRAs, as you will never pay taxes on the money you take out. There are max income limitations on Roth IRAs, but that is not an issue for lower income investors.

Google Roth IRAs for more info.

[WRellim]

You are correct. "Shelter" was the wrong word to use. Thanks for adding details...

Even more detail: "Roth IRAs" are preferrable to traditional IRAs, as you will never pay taxes on the money you take out. There are max income limitations on Roth IRAs, but that is not an issue for lower income investors.

Google Roth IRAs for more info.

I've always been stuck on the fence post with Roth IRA's...

I'm just not certain whether one can trust the government to "remember" (or even care) about it's "promises" to treat Roth IRA's as any less "seize-able" than any other form of IRA. Technically they still KNOW about those accounts, and they still get the interest amounts (as well as deposits/withdrawals) reported to them. The non-taxability is what I think of as a temporary "courtesy" -- one they can (and very easily could) "revoke" at any time.

If you disbelieve me on that, understand that Roth IRA's are considered as "pensions" by the government. They are ALWAYS covered under the same sections of law as other "pensions" -- for example the "Pension Protection Act of 2006" covering totals of allowed donations to charities.

That which the government "grants" the government can "revoke" at any time.

Seriously, other than business transaction accounts, the government believes it owns EVERYTHING (and even business bank accounts -- I mean FDR closed ALL banks to ALL business for a full THREE DAYS).

Anything NOT in your direct physical possession is subject to seizure and confiscation by "remote control" -- yes, they can declare the rest of your physical possessions to be theirs as well, but (other than property taxes) then they actually have to come out and physically grab it (something that is much more difficult to do on a widespread bulk basis).



The sad thing of course is that we are approaching the point where the above no longer seems quite so "paranoid" as it once did, does it? It is now (once again) within the "realm of possibility" if not probability. (And to my mind, if you think it still is paranoid ...then I think you just haven't been paying attention.)

[Brian4Liberty]

I've always been stuck on the fence post with Roth IRA's...

I'm just not certain whether one can trust the government to "remember" (or even care) about it's "promises" to treat Roth IRA's as any less "seize-able" than any other form of IRA. Technically they still KNOW about those accounts, and they still get the interest amounts (as well as deposits/withdrawals) reported to them. The non-taxability is what I think of as a temporary "courtesy" -- one they can (and very easily could) "revoke" at any time.

If you disbelieve me on that, understand that Roth IRA's are considered as "pensions" by the government. They are ALWAYS covered under the same sections of law as other "pensions" -- for example the "Pension Protection Act of 2006" covering totals of allowed donations to charities.

That which the government "grants" the government can "revoke" at any time.

Seriously, other than business transaction accounts, the government believes it owns EVERYTHING (and even business bank accounts -- I mean FDR closed ALL banks to ALL business for a full THREE DAYS).

Anything NOT in your direct physical possession is subject to seizure and confiscation by "remote control" -- yes, they can declare the rest of your physical possessions to be theirs as well, but (other than property taxes) then they actually have to come out and physically grab it (something that is much more difficult to do on a widespread bulk basis).

Well, like you said, everything is at risk that is not in your personal possession, so you never know.

More likely than confiscation is that they will inflate your savings away. Where did I hear that?

[WRellim]

Well, like you said, everything is at risk that is not in your personal possession, so you never know.

Actually even things in your personal possession are at risk of loss; they are simply not as easy to confiscate on a nation-wide basis.

More likely than confiscation is that they will inflate your savings away. Where did I hear that?

Hence the "remote control" and the very definition of the term "fiat."

[gaazn]

You can put Gold in a Roth