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1 Buck  Wed, May 1, 2013 12:53:25pm

It isn’t tax free, it is tax deferred.

The person who puts money into a retirement fund gets to put off paying the income tax until they withdraw it.

Sometimes the money is withdrawn slowly enough to trigger a lower tax rate that it would have originally.

There is still a benefit to the government as those people are withdrawing the amount they need and are not depending as much on government entitlements.

There are people who die before the money in their retirement fund is depleted. Often, upon their death, the entire amount is triggered as taxable in that year. Often in those cases an even higher tax rate is used.

2 klys  Wed, May 1, 2013 1:00:04pm

Provided the limit is tied to inflation and does not require Congressional approval to increase, I don’t see what the limit with this is. It’s not a limit on how much you can save for retirement, just a limit on how much you can save in tax sheltered accounts - a limit which is pretty high, considering the contribution limits.

I think this kind of thing is more aimed at the really fancy shenanigans pulled by some folks (like, oh, Romney) where certain types of stock were put into an IRA that allowed it to explode in value, compared to what most of us ordinary Americans are stuck with.

3 klys  Wed, May 1, 2013 2:09:20pm

re: #2 klys

Gah. I meant “what the issue with this is.” Except apparently I liked the word limit there.

4 Bob Dillon  Wed, May 1, 2013 2:22:44pm

re: #1 Buck

Roth IRA distributions are tax free. (Taxes are paid during the conversion process from IRA to Roth on the front-end, not during distribution)

There are multiple complex distribution stratigies to minimize future taxes. If not set up and followed precisely the IRS penalties are staggering.

When one reaches 70 1/2 RMD kicks in and you must take minimum distributions and pay the tax associated with your present tax bracket or pay an additional 50% penalty.

The math does not work in the 401k savers favor unless their company has a generous matching scheme. And then fattens the brokerage houses’ pockets in fees and comissions while you take all the risk. BTW who do you think wrote the laws and regulations in the first place? Congress or the Wall St. Lobbyists?

401k & IRAs are the best savings plan for future congressional spending that congress has ever come up with.

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