The article is about IRAs, not 401Ks.
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When you are separated from service, it does make sense to convert a company-sponsored plan (401k or the like) to a personal Plan (IRA) under current inheritance regs. Also, some companies force you to leave their plans when you leave.
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Excellent run down - thank you. Youāre right. If the laws worked as they were intended, 401Ks would have been a benefit to most workers. Because there was so much abuse of the system primarily by corporations large and small, most people are inadequately prepared for retirement and a few have far more than should technically be possible in their 401Ks.
OTOH, the Roth IRAs were designed to be abused by the wealthy - everything about them invites manipulation by those that have money to spare while providing next to nothing to those that arenāt so well set, starting with allowing people to transfer out large sums from their regular IRAs for some number of years.
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So rich folks have $5 million in their IRA.
Guess they didnāt pay 18 years of child support and pay off thousands of dollars of their parentās medical bills that insurance company bean counters refused to reimburse.
Well, thereās always the next Powerball or MegaMillions jackpotā¦
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I am lucky enough to have a small Roth IRA. I set it up because I have a Roth component in my 401k with a small employer match and I will leave no money on the table and will, in the next few years, need a Roth IRA to roll it into.
But now, as always, I marvel at what possible legitimate purpose it was meant to serve.
Itās like my HSA. I keep a low balance in it and pay my doctor and prescription bills with a regular credit card (for the points). I periodically make a deposit from checking to the HSA and reimburse myself for the healthcare expenses I paid on my credit card, magically turning a non-deductible health care expense into a deductible healthcare expense. All perfectly legal but it feels like money laundering.
This is, of course, only feasible if you have enough money to not miss the money while it goes from checking to the HSA and then back to the checking account. And thus the effect is to enable the affluent to deduct their co-pays and out-of-pocket expenses, but not the working poor with bronze level plans who most need for their co-pays and OOPās to be deductible.
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$5 million should be possible if someone started early, had a large enough salary for their entire working life, and they didnāt run into periods of joblessness or employers that messed with the allocations, etc., but thatās a lot of ifs and it skews heavily toward the white collar class.
At some point, most of them figure out that they can do better if they donāt lock money into a 401K or IRA - withdrawals from 401Ks and IRAs are taxed as regular income (even if youāve lost money on those investments) and the government requires minimum withdrawals after age 70. Roth IRAs or just normal investments are much more attractive with fewer restrictions and a lot lower taxes. Those folks will put enough in to get their employer match and put the rest of their savings elsewhere.
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I decided early in my career to pay my taxes up front and not trust the government to honor any promises vis a vis retirement savings. Iāve been self- employed for over 30 years after 14 years at a large corporation, so I knew I was on my own. Early on, my taxes were extremely low (lots of deductions) so paying then made sense. I couldnāt figure any way the powers that be would leave the assets of the middle class sitting on the table - and they didnāt. I also figured that any vehicle used by the wealthy would be carefully protected (capital gains, etc.) As a younger boomer, there were lots of changes to corporate structures and benefits packages over the years, none of them to the advantage of the worker-bee. I feel like I made pretty good decisions overall.
Good point. The people using this loophole are very wise in the art of manipulating their basis.
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Itās dumbfounding that a guy worth $4,500,000,000 can slip into a Roth IRA at all. A single person making more than $76k is not supposed to be eligible to contribute to an IRA and if one makes more than $140k he/she canāt contribute to a Roth IRA.
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Yes Roth IRA abuse needs to stop. Especially if valuations are being manipulated.
I would hardly call anyone with a 5 Million retirement account Mega Wealthy.
If I recall correctly 7000 was limit on IRA contribution for traditional IRA is there no limit on Roth?
For the rest of this rabble, IRAās make their language confusing and there are different kinds that are only subtly different but have all these weird regs.
But hahah those with military family members and teachers - my seven hundred dollars is safe from your rapacious tax-funded salaries. The jokeās on you!
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Iām not interest - ed.
Donāt you worry, M. I know with your grit an determination that youāll make Dennyās Manager one day.
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this
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Too old. Plus which the last job I had in the industry literally had the title āsalad assistant.ā
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Save 10% of your paycheck every month!
What?
You find that hard when you are making minimum wage? Clearly your terrible personality and weakness are to blame.
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Have you thought about night school to learn about copier repair?
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Listen to you. Everyone with 40 bucks or so to spare has a multifunction machine to do that stuff and if it breaks they throw it out and get another. Career-advise better.
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Uh-oh!
Except that if you put in the maximum for as long as Roths have existed, then you arenāt going to have $5M. If you rolled over a 401(K) into a Roth, you had to pay income tax on the amount, because you are going from a vehicle that taxed at withdrawal to one thatās for after-tax deposits. Therefore, while iās perfectly legal, very few people are going to do it, unless they can take advantage of tax codes in ways that Congress probably never intended:
- They under-value assets that are not publicly traded when depositing and/or
- They do their roll-over when they have a capital loss to offset the gain.
When Romney did his financial disclosures, he had over $100 million in an IRA, which is basically impossible even for the best investors without exploiting tax loopholes, like carried interest.
People who are in senior positions in Venture Capital firms or are the major shareholder in a company can take advantage of that power to value their assets in advantageous ways.
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