With the demise of pension plans, Americans have become completely responsible for their own retirement savings. Thankfully Congress stepped into the breach by creating tax-advantaged retirement accounts, such as 401(k), IRA, and Roth accounts. These accounts allow Americans to save money for retirement but defer or eliminate tax obligations, allowing them to stretch their paychecks further than they otherwise would have been able to do. Many Americans have taken advantage of that to build up sizable nest eggs.
But Congress has seen what has happened, and today the trillions of dollars sitting in retirement accounts look like a pretty tempting target for a Congress that couldn’t balance a budget to save its life. And with attention turning to retirement accounts, there’s a very real possibility that at some point in time a future Congress may look to start tapping into those accounts to drum up more revenue.
President Biden has already set his sights on some retirement accounts, so-called “mega-IRAs”, with plans to change the rules of the game in order to get those IRA holders to pay more taxes to the government. And it could only be a matter of time before your IRA or 401(k) is in the government’s crosshairs. How would you protect yourself?
The History of Government Interference in Retirement
This isn’t the first time that the government has floated the possibility of opening up retirement accounts to new restrictions and new taxes. At one point during the Obama administration, the Democratic Congress was flirting with the possibility that retirement accounts could be forcibly converted to holding government bonds, part of an attempt to allow the government to continue spending money without having to resort to borrowing.
Thankfully none of those proposals ever came to fruition, otherwise millions of Americans today might have low interest rate-bearing Treasury securities in their accounts rather than the more profitable investments they actually hold. But once the possibility of cracking open retirement accounts was floated, you knew it was only a matter of time before the government would figure out a way to get its hands on some of that money.
Americans hold about $12.5 trillion in IRA accounts today, and nearly $7 trillion in 401(k) accounts. Both of those figures are nearly double the total amount saved and invested in 2010. And with a government that is running a budget deficit of nearly $3 trillion, you know that Congress is looking at those nest eggs greedily.
Current Proposals to Tax Retirement Accounts
Currently, investors in retirement accounts are required to take required minimum distributions (RMDs) at age 72. That is to ensure that retirement accounts aren’t used as an endless tax shelter, but are instead used to actually raise funds for retirement. But Congress is thinking about enacting new RMD requirements for what it calls “mega-IRAs”.
Right now the threshold being discussed is $5 million, supposedly meaning that IRAs that hold more than $5 million would be forced to distribute anything in excess of that amount. But like many things, the devil will be in the details.
More than likely, that will be a $5 million total amount across all IRAs or across all tax-advantaged retirement accounts. And who is to say that the $5 million threshold won’t be moved downward to $2 million or even $1 million?
While many people think that $1 million is a lot of money, that’s the bare minimum that many financial analysts will tell you is needed in order to retire comfortably. And many are now preaching that due to lower growth rates in the future, a $2 million nest egg is really the bare minimum to shoot for.
So what happens when the government decides that it wants you to divest yourself of your hard-earned savings and investments? What happens if you no longer can rely on your retirement accounts to keep producing for you in retirement?
How Gold Can Help
For many investors, the idea of a gold IRA is something new and unheard of. But gold IRAs have a relatively long track record in helping investors protect their tax-advantaged retirement assets.
A gold IRA is just like any other IRA, except that it invests in physical gold coins or bars. Those gold coins or bars are then held at a depository. When you decide to take a distribution, you can take the distribution in cash or in physical gold. Given the fact that cash will lose money to inflation, it’s no surprise that many investors like the ability to take a distribution in gold.
Let’s say that the government forces you to divest a portion of your IRA assets because you have “too much” money. If you liquidate some or your gold IRA holdings and take possession of your coins, you still have ownership of your gold investments, they just aren’t subject to any further RMDs by the government. And they can continue gaining value into the future, unlike cash which will lose value and purchasing power to inflation.
A gold IRA has the same tax treatment as any other IRA, and you can roll over assets from your existing 401(k), IRA, TSP, or similar accounts into a gold IRA. You can even open a Roth gold IRA in order to do a Roth conversion if you so choose, and then your distributions won’t be subject to taxation. In short, you have a lot of options when it comes to a gold IRA.
The writing is on the wall that Congress could increasingly target retirement account assets for higher taxation, greater RMDs, or anything else it feels like in order to raise money for the government. Don’t let your retirement savings remain a sitting duck waiting to be plucked by the government. Call the precious metals experts at Goldco today to find out how you can safeguard your retirement savings with gold.