Trying to plan, when the rules keep changing, is frustrating.
If you’re focusing on the possibility of a tax on the value of retirement accounts, or being means tested out of SS because of the value of retirement accounts, I understand why you feel this strategy would be appealing. You would also not be concerned about using retirement accounts for partial asset protection.
Assuming you would deposit the money in taxable accounts (and not just spend it all), you’d have to manage the amount of income (not necessarily just taxable) those accounts generate every year to keep under the radar.
If the government set their sights on retirement accounts, that may be just the beginning. Once they’ve exhausted the possibilities there, they’d start eyeing the values in taxable accounts. Even people who take the RMDs would accumulate sizable balances outside the retirement accounts, provided they’re not relying on that money to live.
I would not withdraw retirement fund account money to avoid SS means testing, only to put that money into a taxable account, because the means testing will likely also hit taxable account balances as well. If you have $1M in taxable accounts, do you need to collect SS?
There’s several methods of storing and transferring wealth that don’t involve accounts that be easily seen by the government for means testing purposes. Bitcoin, gold coins, real estate held in a trust that’s being rented out and you get a cash flow from it, paper cash, gift cards, etc.
It would be unwise to have $500k worth to cash out your retirement accounts into all Visa Gift Cards, but you could certainly move $20k into Visa GCs fairly comfortably. Many MSers have >$20k of Visa Gifts Cards on them at all times! Then maybe you have a $300k house that you rent out and the deed is in a trust. Maybe $20k in bitcoin, $20k in gold coins, $20k in paper cash, etc.
I see your strategy. I wouldn’t feel comfortable doing all that myself. But I think you can also put financial accounts into a trust, since you’re thinking along those lines already.
I can see them enacting means-testing with a ridiculously high amount, like Mitt Romney’s retirement accounts, then over decades, they start lowering it.
It won’t necessarily be fraud. Currently, the law is that means testing occurs by AGI. You can have billions of dollars in retirement accounts, but if you have no AGI, there’s no means testing. Is it fraud to hide money in the retirement account to qualify for advantageous means testing on SS taxation?
It’s likely future laws could say “If you have >$X in retirement accounts or >$Y in savings account, you’re dinged by means testing.”
The law won’t necessarily ask you to add up the value of your television set into a net worth calculation. And whatever isn’t specifically included in means testing is where I will put my money. I might buy a warehouse full of televisions and sell them one at a time as I need money, in order to maximize means testing. It wouldn’t be fraud if the law doesn’t include television inventory in the calculation.
Of course televisions are a bad investment due to obscolecense, but there will be something you can legally put your money into that will avert means testing.
I don’t see anyone making changes to Social Security any time soon. Our current government can’t even do what its promised to do for 6 years. Not sure how people think major changes to the sacred cow are gonna happen in the current environment.
What I think is more likely is that they’ll just keep kicking the can down the road until we hit a brick wall. If / when SS eventually runs short of funds such that its income can’t cover its expenses then there will be something forcing them to make changes. Just like last time. They changed in the late 70’s / early 80’s because its bankruptcy was imminent. THey put it off until they couldn’t put it off any longer then changed it.
I also see no reason for means testing to be the primary change. There are a variety of ways they can change SS to keep it solvent long term. Last time they increased normal retirement age, made benefits taxable and increased the tax rate among other changes. They’ve raised the tax rate on SS something like 2 dozen times over the past 80 years. That is the ‘go to’ fix for SS. Not sure why we’d assume means testing is now THE only thing that will be done. I don’t think it would even fix SS entirely if thats all they did.
Even if you wipe out all SS benefits for people with incomes over $100k that only cuts SS spending by 2%. Thats not gonna ‘fix’ SS.
Here’s an old list of potential changes to SS and their impact quantified : link
Right now SS is 0.9% of GDP short long term. So you’d have to make changes adding up to that 0.9% of GDP.
I think we’re more likely to see a mix of changes with marginal decreases in benefits plus tax increases sometime around 2030-2040.
[quote=“TripleB, post:42, topic:1836”]
but you could certainly move $20k into Visa GCs fairly comfortably. Many MSers have >$20k of Visa Gifts Cards on them at all times!
[/quote]I have no doubt you can easily buy $20K++ worth of VGCs but you may not have read of DPs about their funds got hacked just hours/days/weeks after purchase. While a lot of MSers may have $20K or more VGCs, it has been said time and again that most, if not all, drain them within 24 to 48 hrs to avoid funds getting stolen by hackers. IIRC, VGCs bought from b&m stores in Hemet, CA were hacked soon as they got activated. Other VGCs that are easy to hack are the MCs issued by USBank sold at grocery stores and OSS, many have reported their funds were zero-ed out hours after activation.
Therefore, any MSer should know NOT to hoard VGCs for future use unless they’re willing to take the risks of funds getting wiped out in hours/days/weeks/months.
Great point! I did not hear of that Data Point but I did notice of the two Walmart Visa GCs that I bought, they had card numbers that were ascending by one logical unit.
For example, if you know 1, 2, 3, 4, 5… you can guess the next ones are 6, 7, 8…
With CC numbers, the numbers are not in line by adding one to them. There is a checksum associated with the last four digits so ensure it’s a value card number. However, that is easy enough to reverse engineer and figure out the next logical card number in progression.
As far as the CCV goes, it can be brute forced on the giftcard website in 1000 guesses or less.
It’s worth considering how they’ve messed around with taxation of retirement vehicles over time by introducing the Roth.
With traditional retirement vehicles income is taxed when it was spent (in retirement) rather than when it was earned. The Roth IRA was introduced in 1998 as a short-term gimmick that allowed the government to get their hands on the taxes from retirement income when it was earned rather than when it will ultimately be spent (boosting tax revenue in the short-term at the expense of coming up short years later).
The Roth IRA was highly successful and designed to create a short-term bump in tax revenue with the trade-off being a significant longer-term decline in tax revenue. This was especially problematic since assuming at least semi-competent investing (investors achieving returns greater than the risk-free rate) meant the later decrease in tax revenue would be significantly greater (when brought back to net present value) than the additional tax revenue realized in the present.
Of course, this was bound to create an inevitable shortfall later and to help combat that congress doubled-down on the concept by creating the Roth 401k in 2006. Instead of being limited to immediately capturing retirement income tax dollars on a 4-figure a year investment vehicle (the IRA) they could now capture retirement income tax dollars on its potentially 5-figure cousin (the 401k) as well. This would be anticipated to create the same short-term bump and later decline, but at a higher order of magnitude than before.
Now it’s 2017 and congress is really feeling the pain of baby boomers who opted to go Roth and paid their taxes early. They’re seriously considering limiting traditional retirement vehicle deductions to $2400 a year to force even more people into Roth vehicles for yet another short-term bump, at the expense of tax revenue later. If this happens (and the previous timeline is maintained) we should expect to see congress entirely do away with traditional retirement vehicles (force everybody into Roths) somewhere in the 2026 to 2030 range.
If this happens the government is in a pretty rough place come 2040-2060 because with everybody in Roths there are no future retirement tax dollars they can raid. I give that wide range because as a Gen-Xer I’m optimistic that our generation is small enough that Millennials paying into their Roths will be enough for us to ride it out until they retire, but at that point all the blood is drained and the government is out of games they can play with how they tax retirement funds. Whether they want to or not they’ll be forced to significantly raise taxes or significantly decrease social security payouts (and means testing is likely to be the only politically possible way to do that).
I don’t think thats really a big factor or impact (relatively speaking).
Total Roth IRA withdrawals are in the neighborhood of $10B so they’re only losing something around ~$1-2B / year in tax revenue.
They’re looking at limiting tax deductions from retirement accounts in order to offset other tax cuts. Not to make up a shortfall due to the impact of Roths
