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Hope you don't plan on having more than $3M in your IRA's

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nehalem256

Lifer
Apr 13, 2012
15,670
6
0
If you were to contribute max into IRA and nothing else (no 401k), and earn a lifetime average of 10%, you could easily hit $3+million.....
But the funny thing about compound interest is if you earn a lifetime average of 9% you only reach $2.9million.

I think a lifetime average of 10% is unlikely.
 

Exterous

Super Moderator
Jun 20, 2006
18,882
1,792
126
But the funny thing about compound interest is if you earn a lifetime average of 9% you only reach $2.9million.

I think a lifetime average of 10% is unlikely.
The S&P average from 1970 to Jan 2013 is 10% with dividends re-invested (Which they almost certainly would be in a tax advantaged account)

Granted there was a tiny bit of inflation in there as well but it is not without historical precidant

Also - I know he mentioned that 401k aside but its important to note that this does include 401ks, pensions and Roth IRAs. I would assume 403b and 457 plans would count as well (Edit: They are included in this as well)
 
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nehalem256

Lifer
Apr 13, 2012
15,670
6
0
The S&P average from 1970 to Jan 2013 is 10% with dividends re-invested (Which they almost certainly would be in a tax advantaged account)

Granted there was a tiny bit of inflation in there as well but it is not without historical precidant

Also - I know he mentioned that 401k aside but its important to note that this does include 401ks, pensions and Roth IRAs. I would assume 403b and 457 plans would count as well
:D I think that might be a bit of an understatement. And I would assume the $3m figure would be adjusted for inflation just like contribution limits are.

So we really should be using inflation adjusted return numbers which would be much closer to 7% than 10%.
 

Sho'Nuff

Diamond Member
Jul 12, 2007
6,211
114
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So, uhh, you really have $3M or anywhere near that amount in your IRA w/o running a Romney scam? Really?

It's not like you'll never pay taxes on retirement accounts, either- that's why they're called *deferred compensation* plans. You pay taxes when the money comes out...
Yes and Yes. I've maxed out my 401k since I was 21, and have been investing additional income in IRA's since that time as well. The collective balance in those accounts is not $3M yet, but if a 7.5% ROI is assumed, it will be in the not too distant future. Certainly well before the traditional retirement age of 65.

I have no problem paying taxes on deferred compensation accounts, so long as the taxes incurred are the one's that I expected to pay when I entered into the investment. Changing the tax laws governing an
investment is a bit like changing the rules of the game as it is played.

As for your comment on the Romney "Scam," the mans marginal tax rate was reduced in large part due to his choice to DONATE large swaths of money to charitable organizations, something that the government supports. Hypothetical question- If a rich guy donates 10M to the red cross with the consequence of reducing his marginal tax rate to 18% from 30%, is he good or evil?
 
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Exterous

Super Moderator
Jun 20, 2006
18,882
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:D I think that might be a bit of an understatement.
Just a tiny one ;)

And I would assume the $3m figure would be adjusted for inflation just like contribution limits are.

So we really should be using inflation adjusted return numbers which would be much closer to 7% than 10%.
Well - its a bit vaguely worded at the moment. They said it is adjusted for inflation but not what will be the judge of inflation (CPI, PPI, GDP? Who knows!). Of more important concern IMO is that it appears to be tied to annuities so a rise in interest rates will cause the cap to lower. As inflation often causes interest rates to rise we have a perverse effect of the cap being raised and lowered at the same time so what the inflation adjustment is tied to and the magnitude that both metrics affect the cap are of paramount importance.

But all we have is a poorly worded proposal that leaves the door wide open to speculation and a hope that, should this ever make it to the floor, that the government won't fuck it up
 
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Sho'Nuff

Diamond Member
Jul 12, 2007
6,211
114
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I assume you know this, but 'misspoke' - we have never allowed unlimited contributions to IRA's.
Thanks for giving me the benefit of the doubt. I did know this. What I meant to say is that there was not a limit on the total balance of an IRA.

I haven't heard the details of this proposal. You seem to be implying that amounts currently in IRAs above the propose limit would be taxed. if so, can you give us a link pls?
http://money.cnn.com/2013/04/10/retirement/obama-retirement-saving/index.html

http://business.time.com/2013/04/10/obamas-budget-would-cap-tax-advantaged-savings/

http://www.forbes.com/sites/janetnovack/2013/04/10/could-curbing-the-boss-retirement-tax-breaks-endanger-workers-401ks/

actual proposal: http://www.docstoc.com/docs/113104646/budget

But otherwise, I can understand people being angry at what is essentially a retroactive tax law change. That's very rare. It seems to me we've either had one, or perhaps it was merely a proposal. In any case as a tax professional I'm generally opposed to retroactive tax law changes. Bad, bad policy for a number of reasons.
Fern
It is currently a proposal. But it is still infuriating to me. It demonstrates that we have a president that is more interested in wealth redistribution than sensible wealth/spending management.
 

Exterous

Super Moderator
Jun 20, 2006
18,882
1,792
126
I haven't heard the details of this proposal. You seem to be implying that amounts currently in IRAs above the propose limit would be taxed. if so, can you give us a link pls?
I believe the biggest contention is what is meant by 'accrual' and no mention of grandfathered accounts. Its still a proposal so hopefully they would address this issue but I don't see how they would generate the income they say it will if the old accounts were grandfathered in. I don't think you are going to get that many people reaching above the $3mn mark every year - esp once they know what new tax laws are in place

Treasury Greenbook p167:
If a taxpayer received a contribution or an accrual that would result in an accumulation in excess of the maximum permitted amount, the excess would be treated in a manner similar to the treatment of an excess deferral under current law. Thus, the taxpayer would have to include the amount of the resulting excess accumulation in current income and would be allowed a grace period during which the taxpayer could withdraw the excess from the account or plan in order to comply with the limit. If the taxpayer did not withdraw the excess contribution (or excess accrual), then the excess amounts and attributable earnings would be subject to income tax when distributed, without any adjustment for basis (and without regard to whether the distribution is made from a Roth IRA or a designated Roth account within a plan).
Investment gains above the cap do seem safe though:

If a taxpayer reached the maximum permitted accumulation, no further contributions or accruals
would be permitted, but the taxpayer’s account balance could continue to grow with investment
earnings and gains
Like others I'm not quite sure what the definition of accrual is as I'm not sure what differentiates that from earnings or gains (I would think accrual would include earnings and gains but I'm admittedly not an expert)

http://www.treasury.gov/resource-center/tax-policy/Documents/General-Explanations-FY2014.pdf
 
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