Automatic IRAs proposed in Congress

snip

OMG. Enough. Maybe I live close enough to Walden Pond that my first response to this is "Simplify, Simplify." Why add yet another variant to retirement accounts, distinct from the

401(k)/403(b) that already exist on the employer side? If you want the automatic feature, add it to the current accounts.

I spend what I consider to be a disproportionate amount of time addressing the subtle differences between these accounts (IRA vs 401(k), SEP IRA, 403(b), the Roth flavor) how they are funded, the limits both in deposit caps, eligibility, withdrawal rules, etc.

We should be going in the other direction - reduce the accounts, giving the more favorable terms to the remaining ones, and simplify. All post tax IRA money or 401(k) money? It gets transferred to Roth. No calculating portion that was pretax. In the end, there are two accounts, Pretax and Post(Roth), and they can be through employer or held by individual.

Rant over. Sorry. Joe

Amen. A single deferred-tax savings account for all sanctioned reasons like retirement, housing, medical, education. I have about 8 or 9 accounts for the various benefits at work and previous jobs. Too many to track. Bush proposed this a couple of times.

Why not just do away with the whole tax-deferred nonsense altogether? I know that's probably heresy around here, but if you really want to simplify matters...

--Bill

That would help simplify, but there needs to be an incentive for retirees to save and not give money away to relatives and other deadbeats.

Would removing the income tax from the first $60,000 of investment income of retirees encourage people to save and invest?

-- Ron

If IRAs were eliminated, yours could be a simplifying solution, but seems a tacit admission that taxes are not a simple matter. Would "investment income" include small business ownership? Is an exemption for IRA's a broader and more efficient incentive, as it provides immediate tax relief?

Is the tax on social security income a disincentve to continue that program? Bill's notion is interesting. If we accepted full responsibility as individuals, then many of the incentives in the tax codes could be simplified to zero, but a long time ago government began to assume responsibility 'away' from individuals.

I would exclude wages derived from a small business, but it gets hard to distinguish wages from investment income.

Since I prefer a Roth IRA over a standard IRA, I don't value the immediate tax relief of a standard IRA.

The 401k's are not a good solution because they take control of the investments from the wage earner.

SS is insurance meant to keep old folks off of welfare. It seems to work until someone needs assisted living. Having to pay tax on SS doesn't make me feel like dumping the system because then old folks would need to have welfare payments raising taxes anyway.

It isn't just government that takes responsibility away from individuals, there are also banks, investment houses, and corporations that want to handle the savings of individuals.

-- Ron

Why does there "need" to be such an incentive?

[..]

Agree 100% with the rant. The whole thing about retirement accounts is overly complex. Creates unnecessary paperwork and headache.

While I share Ron's frustration because I see so many people who make poor decisions with their money (for example, helping relatives and deadbeats), I don't see a need for more government interference (incentives).

Admittedly, I don't have a solution. It breaks my heart to say this, but some people just make bad choices. And if they didn't do this (help relatives and deadbeats), they'd screw up somewhere else. Sad.

HW, do you think that it is always bad to help relatives with money? Or just most of the time?

i

I've been described in a variety of ways, but I haven't been called "inexperienced" in quite a while. And one of my experiences is that people who use terms like "always" and "never" are exhibiting a lack of experience.

So my answer is "the majority of the time".

And I'll pass on debating it. Others are free to form their own conclusions.

When discussing possible changes and who should assume responsibility for retirement planning and savings you also need to keep in mind that the folks on this forum are not typical Americans. The average person is driving a truck, working on a factory floor, clerking in a retail store, etc. I don't know what the best solution is but it needs to work for most people, not just those with advanced degrees.

Heck, I agree with everybody, but when things get so complicated that NO ONE understands them, what they are supposed to mean, how they work, or what they do, then it gets really tough! I studied Russian once, and came across a great little quote: "Every language has rules, but a language is as beautiful as it contains exceptions. Russian is a very beautiful language." That's cool for a language, but I don't believe there's anyone alive who has mastered the tax code, for example. By contrast, there are people who have mastered Russian, and believe me, it is amazing even without exceptions. (Sorry if my attempted humor is not as funny as I may think, but I just got dizzy reading over the observations and opinions, here, trying to think of something to contribute, to add.)

Accounting and economics are available in high school, these days, and I see that as very positive. Not sure teenagers would agree.

Oh, "Skip" - I think our powerful Uncle Sam agrees with you as regards helping relatives and family members. Just have to learn to take with one hand and give with the other, which may lead to schizophrenia. We're not, as a nation, that bad off, you know? It is, IMO, the confusion of the financial crisis, housing bust, and the looming retirement of the baby boomers (who arguably are the ones who screwed things up in the first place, so as one T-shirt I saw hanging in a window on a gorgeous cottage on the Strand in Hermosa Beach read, in big block capital letters, "DIE YUPPIE SCUM"). (Once upon a time I'm told, Hermosa was a quiet paradise on Earth - today thousands of people skate, walk, ride, hop, bounce, and crawl all along it, and the taxes on that one little house that has been there since the 1950's, are probably more than the good people paid for it, many years ago.) I truly hope the coming generations do better.

As people age, they may need to go into a nursing home which will consume their wealth and make them dependent on welfare (raising my taxes.)

I would prefer an incentive to something compulsory.

-- Ron

So because something "may" happen, something else "needs" to be done, correct?

Forgive me if I find this logic unpersuasive.

Do you feel the same about tax incentives for big business?

Thumper

Its quite persuasive if you look at the entire population.

X% of the population *will* go into a nursing home and consume their wealth and become dependent on welfare. This *will* raise Ron's taxes Y% unless the annual welfare cost of the X percentage people actually decreases in the coming years. That seems unlikely in view of current demographics.

How do the tax > Why does there "need" to be such an incentive?

I agree. There are already incentives to save - not living paycheck to paycheck, having money to handle emergencies, eventually being able to retire, etc.. The problem is that the American public, in general, doesn't find these incentives persuasive. They find the new car, the

6' flat-screen TV (yes, I mean feet) and the latest iPhone much more compelling. So the government's offer of 30.75 cents for every dollar you put in your retirement account doesn't interest very many people.

I have another, more fundamental objection to tax incentives, and it's basically Newton's 3rd law of motion: For every tax incentive, there is an equal and opposite tax penalty. One could look at our myriad of tax incentives and ask, "Why do you penalize people who don't buy a house, don't save for retirement, don't donate to charity or don't buy a hybrid car?" It's a fair question. Seen from that point of view, our tax incentives are less like incentives and more like rewards.

--Bill