Thursday, August 19, 2010

URGENT: 401(K) or Not O(K)?

I hate to be alarmist.  And no, I am not trying to manipulate you through fear.  In fact, my only concern is to protect you and your wealth from the vagaries of the financial markets and the appetite of the ever-expanding government.


Recently some news reports have come out stating that the government is considering changing the rules and status of your retirement accounts.  The reports have varied from an absolute takeover of those accounts by the government (and the issuing of a new government annuity plan) to a simple change in the tax treatment whereby you will no longer get tax-deductions or deferral on those accounts. 

Here is a sampling of those reports:
Now if you followed all the "expert's" advice and signed up for a 401(k) or IRA for the "tax benefits", then what's at stake here is your life savings!  What accounts will be affected:
  • 401(K)s
  • 403(B)s
  • All other IRS Section 400 plans
  • IRAs (Traditional and Roth)
  • SIMPLEs
  • SEPs
Every type of government-favored, retirement savings vehicle that the financial services industry has been pushing for years.

Now I suppose it is possible that all this talk about annuitizing your retirement money is really an attempt by the government to do what's best for the people and is not sinister at all.

Perhaps, but I subscribe to the view offered to me some years ago by an older and wiser financial professional: 

"When the government creates a problem, like onerous taxation, and then offers you a solution to the problem, like tax-favored accounts (IRAs, 401(k)s etc), aren't you just the slightest bit suspicious that you are being manipulated?"

He went on to predict that there would come a day when the government would call in that "favor" they were giving you and make you pay up NOW.  How prescient!


That is why I have always advocated limiting your exposure to the market AND reducing your affiliation with government, sponsored retirement plans.  If you haven't done so already, you better take action soon.
So what can you do?  Here are a few suggestions:
  1. Consider trimming back or eliminating your contributions to your 401(k), IRA or other government-sponsored plan and investing that money elsewhere;
  2. If you have an old 401(k) from previous employment or an inactive IRA, you should consider liquidating the account or doing a planned withdrawal (this will incur taxes and penalties and must be analyzed carefully for the best approach);
  3. Establish a truly diversified portfolio as mentioned in an earlier post.
I believe something is coming in regard to your retirement accounts.  In typical fashion the government has floated an outrageous idea like a complete takeover of all 401(k)s so that you won't be so hostile when they offer you the lesser evil of paying immediately all income and capital gains taxes from your accounts.  Don't let it happen to you!  Take action to preserve your own assets, then fight publicly these scoundrels who are supposed to be our servants.

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