Expected inflation is one component of the interest rate. The other two
are the real riskless interest rate for the period in question, which is
low if demand for debt securities is high, and the the risk premium, which
is low if there is very little risk that the borrower will not repay the
loan (for example federal government debt is essentially riskless).

If demand for debt securities is very low because there are better
investments available you can have high interest rates with low inflation.

--
_Bill_

"Ron Peterson" <ron[at]shell.core.com> wrote in message
news:1110675218.552944.144870[at]l41g2000cwc.googlegroups.com...
- quote -

Right. No point in saving money if it's still going to be worth about the
same amount when you spend it. Might as well wait to save until the money
you're saving will be worth far less when you need it. I mean, really. I
thought a low interest rate environment only happens in a low inflation
environment, and low inflation is what we want.

Elizabeth Richardson

Will Trice wrote:
- quote -


I would consider that to be an endorsement. :-)

- quote -

Having low interest rates isn't a very good incentive to save.

--
Ron

Bill wrote:
- quote -

Greenspan stated last week that he believes a VAT will harm the economy.

- quote -

Hmmm, I've also read that W favors a consumption tax, but that he favors
the system I mentioned before as opposed to any type of sales tax.
Supposedly a sales tax fails his simplicity criteria (he's also trying
to simplify taxes). I think the article I read describing this was from
the Wall Street Journal and I thought I still had it around, but of
course I can't find it now when I need it.

- quote -

Actually, last week Greenspan came out in favor of a combination of an
income tax and a sales tax.

Agreed. Another alternative is a VAT, which is an invisible consumption
tax. I was referring to the rumor which continues to appear that George
Bush would like to completely replace the income tax with a consumption
tax, most likely a national sales tax. Alan Greenspan also favors a move
to a consumption tax on purely economic grounds. Greenspan's goal is to
increase the savings rate. He does not address the political implications.
IAC, we are off the forum's topic.

--
_Bill_

Will Trice wrote:

Bill wrote:
- quote -

Keep in mind that a consumption tax can be implemented many ways the
most likely of which is not a sales tax. A consumption tax would likely
leave much of the current income tax system in place, but allow for
unlimited tax sheltered savings. The idea being that your "consumption"
is all of your income that you didn't put into a tax-sheltered account.
So taxable income would then be Gross Income less money deposited to
tax sheltered accounts, less deductions (although under this system I
would imagine that deductions will be greatly curtailed).

-Will

It will take AARP and others about 4 milliseconds to alert the entire
population to the fact that a shift to a consumption tax means double
taxation of all non-tax sheltered savings and invested capital. I have a
hard time believing that a shift to a consumption will ever happen without
a deduction for already taxed assets. It is an issue that is too easy to
understand for congress to hoodwink the public.

--
_Bill_

HW "Skip" Weldon wrote:
- quote -


Uncertainty over which way the federal tax system might be restructured
is a good reason to fund a 401k (or regular IRA) and a Roth IRA... and
a taxable account while you're at it. (I knew they'd find a way to tax
my Roth account.)

Bob

On Tue, 8 Mar 2005 17:54:38 CST, "CFPCafe" <info[at]cfpcafe.com> wrote:

- quote -


I trust that those who are considering Roth over deductible 401k or
who are considering Roth conversions are keeping one eye on the talk
of some form of consumption tax.

Contrary to what I expected, such talk seems to be increasing rather
than going away.



-HW "Skip" Weldon
Columbia, SC

Regarding the IRA rules, here's a cut and paste answering a members
question from my forum at www.cfpcafe.com

As long as you're under 70.5 years old AND receive earned compensation
(including alimony) you can contribute to an IRA. Your IRA will grow
tax deferred until you withdraw the money, at which point you'll pay
ordinary income taxes on the amount withdrawn (possibly a penalty if
you withdraw before age 59.5).

Here's where it gets tricky. If you contribute to an IRA and can't
deduct the contribution you'll only pay taxes on the amount of growth
you have in your IRA when you withdraw the money. If you can and do
take a deduction for the IRA contribution you will pay taxes on the
entire amount of the distribution. SO IT'S VERY IMPORTANT to keep
accurate records of both deductible and non-deductible IRA
contributions so you can avoid paying taxes on any amounts withdrawn
which you've already paid taxes on (the non-deductible contribution).

Whether your contribution is deductible or not depends on a few things.
If you or your spouse is an active participant in a qualified employer
sponsored retirement plan that may reduce or eliminate the
deductibility of your IRA contribution.

The maximum contribution for 2004 was $3,000, the maximum contribution
for 2005 to 2007 is $4,000, and in 2008 it's $5,000.

There's also something called a "catch-up" contribution. The catch up
contribution allows individuals who are nearing retirement and need to
get more money saved to contribute MORE money to their IRA's and
401k's. If you're at least 50 years old by the end of the year (in your
case you're talking about a 2004 contribution so you must have been 50
or older last year to take advantage of this) you can contribute an
extra $500 for 2004, BUT it get's better! For 2005 and forward it's an
extra $1,000!!!

For single or head of household filers who are covered by an employer
sponsored plan the deductibility of your IRA contribution phases out at
modified adjusted gross income (MAGI) of $45,000 and is completely NOT
deductible at $55,000. For 2005 that phase out range starts at $50,000
and ends at $60,000.

If both spouses work the phase out for deductibility is between $65,000
and $75,000 for 2004. That range increases for 2005 ($70,000 to
$80,000), 2006 ($75,000 to $85,000) and 2008 and after ($80,000 to
$100,000).

The maximum deductible IRA contribution for an individual who is not an
active participant but whose spouse is, phases out at AGI between
$150,000 and $160,000 joint.

The rules were changed recently so if you're married and you have no
income but your spouse does, you can in a sense "borrow" their income
for IRA purposes and fund an IRA also! (meaning you don't necessarily
have to earn the income to fund the IRA yourself).

I hope this helps, I know it may sound confusing so I HIGHLY recommend
consulting your tax advisor for further information, but this should at
least get you thinking a bit more about making that contribution if you
can!!

In a zero (or minimal even if not zero) tax situation who wouldn't want
to convert at least some of a traditional IRA to a ROTH? If you DON"T
do it, the traditional IRA will grow, and they'll end up paying taxes
on the appreciated value, VS if they convert to a ROTH now - even
paying just a little in taxes, that money will then grow tax free.

I would convert to the point you start having to pay taxes, then I
would do the math - I think you'll find even paying a small amount of
taxes (because you'll be in a low bracket) is worth while because it's
better than paying a larger chunk of taxes later assuming it
appreciates at a reasonable rate of return.

Just my .02

"Elle" <elle_navorski[at]nospamearthlink.net> wrote

- quote -

Yes.

- quote -

No.

- quote -

Yes.

- quote -

Belch wrote:
- quote -

They should create Roth IRAs and not put any more money in the
traditional IRAs.

The traditional IRAs don't have to be converted.

--
Ron

"Belch" <sudsy[at]beerlovers.net> wrote
- quote -

Some clarifying questions:

Have you been in the zero federal tax bracket in the past because of your
traditional IRA contributions?

Do you expect to be in a higher tax bracket when you retire and start
taking money out of your traditional IRA?

Is your married-filing-jointly adjusted gross income below $50,000?

Depending on your answers, some commentary on Roth IRAs and taking
advantage of a fairly new tax credit called the "retirement savings
contribution credit" may be appropriate.

"CFPCafe" <info[at]cfpcafe.com> wrote

- quote -

There is a disadvantage to the Roth. The $7,000 deduction we got for the
traditional IRA last year played a role in putting us in the zero tax
bracket.

This year I think it's $8,000. With this higher amount I think if I funded
one at $4,000 we might still be in the no tax bracket if I didn't remove too
much from the other IRA.

- quote -

Tad's idea was a good one. I'll have to investigate Roth's to see what the
deal is as far as restictions go, etc.

Thank you for your thoughts.

If you're in the zero tax bracket, there's no advantage to funding a
traditional IRA OVER that of a ROTH IRA - in fact you'd be much better
funding a ROTH.

Tad's comment of converting parts of your IRA makes a lot of sense - do
it now while you're in a zero tax consequence situation - you won't
have rmd's at 70.5 too!

Belch wrote:
- quote -

How about Roth conversions instead? At least for some of the IRA value.
Sounds like each year they'd be able to take chunks of pre-tax Trad-IRA
and convert them to post-tax Roth-IRA, at zero tax cost. So by filing
some paper you might net them a bunch of money, in the way of avoided
future taxes, without a dime out of pocket?

-Tad

A couple in the zero federal tax bracket. Always funded IRA's to the max.
Getting older.
IRA's are traditional.

In order to fund IRA's going forward taxable investments would have to be
sold to fund them. This raises some questions.

1. Would it be better to not fund the IRA?
2. Should taxable investments be sold to fund it?
3. One of the people is over 59 1/2. Should he be drawing as much as
possible without going into a taxable situation and putting that money into
taxable investments?

I'm thinking that it would be best to fund the younger persons IRA and start
drawing down the older persons IRA and put that money into taxable
investments.

Comments appreciated.