"raylopez99" <raylopez99[at]yahoo.com> wrote
- quote -

Heck, the Chief of the GAO said similar just a couple of
weeks ago. See
http://apnews.myway.com/article/20061028/D8L1OC5G0.html

Along the lines of what you wrote subsequently, Jeremy
Siegel's latest book _The Future for Investors_ expresses
similar concerns and counsels putting way more into
international stocks than he has in the past, since he
expects the U.S. to be hit hard by baby boomers retiring and
so not being as interested in buying stocks, resulting in
reduced demand, lowering stock prices.

raylopez99 wrote:

- quote -

What's an inflation tax? What are the indirect costs of SS&M?


- quote -

Are they suggesting that individuals should buy these funds or that the
Social Security surplus should be invested in these funds? If the
former, then how does this help with SS&M and inflation taxes?

-Will

Tax laws are fickle.
One of the retirement planning issues is living off of investment
income.
Gains tax went down 1977, up in 1986, down in 1994. Dividend taxes
decreased in 2004. So this "yo-yo" means you cant put all your
bets on one tax strategy.


P.S. It is amusing to observe which political party was the president
when these tax changes occurred. Two of the tax cuts were Dems,
the third a Repub and the tax increse a Repub. So you cant even
predict tax strategy by political party.

Perhaps in indirect ways.
Medicare is just starting to be means tested with only 7%
of elderly currently affected. But I expect ones withdrawals to be
included in the formulas to define you as a person of means.
Plus I expect social security income to be fully taxable.
This wouldnt change things for people who didnt save and
only live on SS. But a person who socked away large(*) retirement
accounts may be affected.

There are three AGI numbers used on tax forms for retired now.
The first is the conventional one. Then is one where you add back
in some sheltered income for the AMT calculation. Then there is
a third one for adding income for figuring out how much SS is taxed.
Therefore, the tax code could both avoid directly taxing "tax free"
income, yet use that income in a "modified AGI" to reduce benefits.
Kind of a liberal's Christmas present- taxes that arent really called
such
in the form of reduced benefits.

(* The madatory withdrawal of a $1.5M 401K with a median SS pension
increases the medicare premium in 2006. Much lower 401K in 2020
and beyond as inflation erodes.)

On Tue, 21 Nov 2006 16:30:13 -0600, Mark Bole <makbo[at]pacbell.netwrote:

- quote -

I worry about this. While I have no problem with eligible savers
making modest contributions to a Roth as part of an overall program,
conversions of traditional IRAs (where we pay a boatload of
unnecessary taxes now, reducing our working nest egg in the process)
is another matter.

I can't think of any other situation that requires substantial up
front payments where I would not insist on some type of guarantees.
Especially when dealing with something as mercurial as the tax code.

-HW "Skip" Weldon
Columbia, SC

Thanks for the replies; a great thread and I look forward to any other
insights from you guys, who seem to know a lot more than I do on this
subject.

For the record, a book that predicts an inflation tax is "The Coming
Generational Storm" by Laurence J. Kotlikoff and Scott Burns (2004).
Burns was the Dallas Morning News financial guy and Kotlikoff is a
Republican policy wonk and professor who had developed a program (see
http://www.esplanner.com/ ) to do Monte Carlo simulation to see how
much retirement money you need and what withdrawal rate (typically 3%)
you can spend it, and not outlive your retirement money. (T Rowe Price
also has an online version, but not as detailed.

Kotlikoff predicts the inflation tax soon, as Boomers retire, since
already the indirect costs of Social Security and Medicare (SS&M) (and
other federal obligations) is something like over $150000 per person.
He also points out that 66% of Americans, now and in the future, will
depend on SS&M for over 50% of their retirement. And having worked on
the hill he doubts SS&M reform is politically feasible. According to
Kotlikoff, though the details were vague, waiting until later to fix
SS&M is not feasible since the interest payments will begin to grow
exponentially. (I am following up reading another book now, taking the
opposite argument--that the aging population is not a problem--called
Aging Nation: The Economics and Politics of Growing Older in America
By: James H. Schulz, Robert H. Binstock)

K&B's proposed solution is to buy unhedged foreign bond funds (a play
on shorting the dollar), mentioning BEGBX and RBIBX, to buy a energy
fund (XLE, IYE, IGE, IXC or VGENX), to buy gold mining stocks or mutual
funds (FSAGX, BGEIX, VGPMX), to buy an international stock fund
(VGTSX), to punt on China (he could not find a decent China index fund
as of 2004 when the book is written--I agree, and note, like Jeremy
Siegal has said, sometimes the hottest stock/region is the worst
performing--I doubt China stocks will really fly, unlike the country
China--but as a last resort mentions the China fund FHXCX and CHN), and
to invest in keeping old people alive with pharma (VGHCX).

RL

Tad Borek <borekfm[at]pacbell.net> writes:

- quote -

What about the creation of the whole passive income/passive
loss stuff back in 1986, which as I understand it hosed
all sorts of real-estate-based tax shelters without any
grandfathering?

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

Tad Borek wrote:

- quote -

Yes, just like tax-exempt interest on muni bonds indirectly increases
the amount of taxable Soc Sec. benefits and reduces itemized deductions
subject to AGI limits. I would never consider a "promise" that 30 years
from now I will be able to withdraw my money "tax free" as a sacrosanct
one. Didn't politicians also once say that Soc. Security would never be
taxed?

- quote -

Absolutely, especially given how much unqualified mortgage interest is
undoubtedly being deducted in error these days. I recall reading
somewhere that in the next year or two, any home mortgage refinance that
involves over a certain amount of cash out would trigger a reporting
requirement to the IRS by the lender. That alone would certainly raise
more taxes without changing any laws at all. Similarly, just think how
much property tax is being deducted which is actually for non-deductible
capital improvements (sewers, etc) or services.

-Mark Bole

raylopez99 wrote:
- quote -


Ray,
Personally I think if Roth IRAs are ever taxed it wouldn't be directly
but in back-door ways. For example a Roth distribution might be added
back into your income when deciding whether you qualify to take certain
tax deductions, or when calculating AMT, or who knows what. The effect
would be higher taxes without actually taxing a Roth distribution.

But I don't think a full repeal of the Roth IRA provisions is likely. I
can't think of any recent tax law that simply did away with an
established shelter like that (closing loopholes, yes, but eliminating a
qualified account, no). And US tax history suggests there would be some
grandfathering of existing accounts even if something was changed.

I also don't see why Roths would be singled out as a source of revenue,
even if the premise is true (that US needs to raise revenue in future).
There are some whoppers out there, such as the mortgage interest
deduction, or change to the Social Security tax salary cap, that with
small adjustments could result in very large increases in tax
collections, without a full about-face on tax law.

Similarly I doubt the US would stop inflation adjustments on I-bonds,
which would in effect be a default on US debt. A more likely narrative,
which arguably already happens, is through policy making sure the
inflation index rises at a slower rate. This is a way to reduce the cost
of inflation-indexed debt as well as the rise in Social Security benefits.

Last you mentioned gold & one of your links pointed to a gold-related
site. My opinion is that any goldbug analysis should be treated the same
way as, say, a rant from some guy who sits down on a park bench next to
you and starts chattering about black helicopters and being wiretapped
at home. He might be right, but he might be insane, and it's hard to
tell the difference!

-Tad

raylopez99 wrote:
- quote -

That article seems to suggest just the opposite, as it states in
conclusion "Gold ownership and its usage to avoid the ravages of
inflation and currency devaluation now stands as a privilege that can
be revoked at any time by new legislation".

John Cowart

Ray, certainly any law Congress has passed subsequently can
be (legally) thrown out. This includes the statutes that
provide for the tax breaks of IRAs. But I personally do not
think Congress will eliminate the tax advantages of
currently held Roth IRAs, because (1) this hits retirees too
hard and so is counterproductive given that one concern is
that Social Security will have to be curbed; (2) of the
effect this would have on the trust of the American people;
(3) Congress has other means of dealing with Social
Security, Medicare, the national debt etc. that would be
less detrimental to people's trust; and (4) considering how
poorly Americans save, I doubt taxing the gains in Roth
accounts would make much of a dent in the aforementioned
national problem areas.

I think your best bet is to google on and study the subject
of how to deal with the latter costs. I have never seen
serious discussion of eliminating the tax advantage of Roth
IRAs. What I see more often are solutions like raising the
SS age; increasing tax rates in general; etc.

Either way, as I imagine you know, like any investment plan,
there is a certain amount of "guessing" involved here. All
one can do is gather opinions and information, as you are
doing now, act rationally upon them, and hope for the best.
Here in my late 40s, I am piling as much into my Roth IRA as
I possibly can.

I think the answer is "yes", but I would like to start a discussion
whether a Roth IRA may be later taxed by the US government and whether
bonds (I bonds, TIPs, etc) may be retroactively taxed later.

The thesis is that the US government will have to tax and inflate the
money supply in the next 50 years due to budget constraints.

Reading the below, I don't see any serious obsticle to the US
government passing a law saying Roth IRAs are 'illegal' and subject to
tax (that is, make a Roth into a regular IRA) and likewise saying that
inflation protected bonds are no longer covered by an inflation premium
(that is, abolishing them when inflation becomes too high, and/or too
many people hold such bonds).

Any thoughts?

Of course the solution is to own gold, but that's another post.

RL



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