Let small retirement savers take easier early withdrawals, forgoing years of compounded investment returns. Our most ignorant and innumerate savers could fund the billionaire tax cuts.
There are $15 trillion untaxed dollars sitting in IRAs, with another $26 trillion in employer-sponsored plans (e.g., 401ks.) Tapping that to fund the billionaire tax cuts is a masterstroke – and you can sell with, “It’s your money, you should have the freedom to spend it when you want.”
Only a tiny portion of retirement savers have captured the 20-fold return that a Long-Term Buy & Hold investment in the S&P 500 delivered over the past 30 years. Most are following the far less effective strategies we often see championed on this board, with predictable long term results. Only about 2% of individual investors exceed the S&P 500 long-term return.
A Retirement Account Fix for the Funding Gap
Allowing one-time, taxable IRA withdrawals would produce the billions in revenue Republicans are looking for.
Interesting. And yeah, they completely ignored the likely result for most people, future pain as their retirement account gets even smaller. But I’m wondering what people like me would do? If I could take a non-trivial part of my IRA today at a much lower tax rate and save it in a tax-efficient manner until I actually retire, that is likely a very good deal for people like most of us here.
Even better is engineering a bear market. You wonder how many decided to sell, take profits, and pay capital gains taxes rather than risk the falling market. Let’s call it new found wealth in the US coffers. Very clever!!
If the tax is only a net of 10%, for anyone mid-to-high income it would almost be a no-brainer to take the maximum allowed out at that low rate. After you withdraw it, it is pretty easy to put the money into things that will never be taxed much. For example, if you want no income from it, put it into Berkshire, and have the basis stepped up upon death. Or if you want some income from it, put it into dividend distributing stocks, and have the basis stepped up upon death. Or some variation on the theme that still preserves some of the tax deferred aspects on that money. It is essentially a kind of basis step up while still alive after paying a 10% “fee” to do so. It will highly benefit people with huge IRAs (many people have IRAs in the millions, and a few even have billions, but the hugest ones are probably Roth IRAs).
And it solves the whole RMD issue (higher tax bracket, IRMAA, etc).
While true for fees, commissions, and trading costs, taxes are inevitable. Pay them now or pay them later. If the tax rate doesn’t change, it doesn’t matter when you pay them. Multiplication is like that.
If you can engineer your tax rate, and if your future tax rate crystal ball is working, it’s best to pay taxes when your rate is low, even if sooner than necessary.
