Mandatory Retirement Bonds? More Reason to be Concerned About Your IRA and 401k

If you’re saving for retirement under a tax “advantaged” plan like an IRA or 401k, please be skeptical. The very same US government that’s offering you “advantages” is also your tax collector. Uncle Sam probably wants to help you save for a happy and healthy retirement, but maybe not. In a pinch — when his own bill collectors come knocking and he finds no money in his pocket — don’t expect him to forget that you still owe him a little something.

The nation’s balance sheet continues to worsen and it’s likely the government’s willingness to creatively access the savings of the American public will increase.

How? According to Jesse’s Cafe Americain:

“…the Obama Administration is promoting the idea now that there should be some encouragement for Americans to start converting their 401K’s and IRA’s into annuities, to provide themselves with lifetime income…”

The article goes on to explain that a potential goal of the feds could be to get “a two year rolling chunk of the people’s retirement cash to play with.”

Another option being explored by the administration is the idea of mandatory retirement bonds issued by the US Treasury and called “R Bonds” for short. Now, if the Fed is comfortable using its own balance sheet to finance the various stimulus packages underway, one can only imagine how much more comfortable it would feel to put the balance sheet of the American citizenry to work.

Jesse’s Cafe Americain takes the idea one step further:

“How about Patriot Bonds that are fully invested in Mortgage Debt formerly owned by the Fed, with some tranches of Commercial Real Estate to add some zest to the recipe? The Treasury can give this option a small tax break, which can be largely consumed by Wall Street fees and mispricing of risk returns.

“And I thought that Greenspan’s advice for homeowners to step into ARMs into the knee of the housing bubble was foul.”

Retirement account pitfalls have been covered more than a few times by esteemed colleague Gary Gibson at our sister publication Whiskey and Gunpowder. As Gary describes:

“The 401(k) is a trap. The banks and the government — as usual — have given the populace enough rope to hang themselves with credit and intimations of retirement security…and the ability to borrow from the retirement accounts or even withdraw from it…at very high cost…

“If you need that money before you’re halfway through your 59th year — say to pay off those enormous debts that the banks were so happy to let you run up — then expect to pay a 10% vig off the top and then have whatever you save count as income on the year. In a progressive tax system, that means you get to watch roughly half of it disappear.”

The conclusion is the same… be wary of tax “advantages” offered by the selfsame tax collector. For more information visit Jesse’s Cafe Americain post on how the Obama administration would like to annuitize 401ks and IRAs and potentially create mandatory retirement bonds.

The Daily Reckoning