Self directed IRAs under attack in proposed tax bill • Hacker News Board

Re: Self directed IRAs under attack in proposed tax bill

#191

Post by ghaff » Thu, Oct 07, 2021, 4:14 PM UTC

wahern wrote: post #160

ghaff wrote: post #137

Earlier quoted context omitted.

While it's not an inherent property of defined benefit pensions, they also tended to be structured in a way that tended to primarily benefit long tenure in an organization--US military being one of the most obvious traditional examples. Switch jobs every few years? You probably weren't going to collect much in the way of a pension. I'm not sure how much the switch has been about "corporate interests." As people becam…

The answer to that shift in employee tenure is simple: shift away from employer managed pensions to independent management, same as for health insurance. That shift was incomplete because corporate focus shifted to draining pensions and centering compensation packages around mechanisms that favored management and especially executives (401(k)'s, stock options, etc), not adapting pensions to employment trends.

But, now, if you have a widespread defined benefit pension that's largely independent of employment, don't you now have effectively a shadow version of Social Security?

Re: Self directed IRAs under attack in proposed tax bill

#192

Post by cherrycherry98 » Thu, Oct 07, 2021, 4:16 PM UTC

wahern wrote: post #89

sokoloff wrote: post #12

Earlier quoted context omitted.

The modern 401(k) practices emerged from one of these then-obscure tax codes, which I view as an unabashedly good outcome.

401(k)'s started to became popular in the 1970s because they allowed management to increase their tax-advantaged compensation relative to labor, whereas defined-benefit plans had stricter and more effective rules regarding management/labor compensation disparities. Then during the 1980s as corporate accounting schemes became more sophisticated preference for 401(k)'s and other defined-contribution plans exploded beca…

Any vehicle which gives me more control I find preferable. A pension is great if it's competently managed and the entity it's tied to is stable. The problem is that it exposes you to counter party risk you can't reasonably mitigate.

Is the pension fund making sound investments? Will the city, state, or corporation be sound decades from now or will they be bankrupt or struggle to pay obligations made by their priors that were maybe inflated?

Private investment vehicles are independent of your employer. If they go bust your balance is sound if it wasn't in their securities, which is again ultimately the investor's choice. If I make bad investment decisions I can live with it. I can't live with promises others couldn't keep, I'm at their mercy.

I would prefer eliminating 401ks entirely and expanding IRAs. IRAs allow choice of broker and much wider investment options. If I know what I'm doing I can take more risk. Otherwise I can play it safe with mostly index funds and sensible asset allocation. If I don't know where to start I can hire an advisor or multiple of my choosing to handle it for me. It also would eliminate vesting periods which keep people in jobs they're unhappy with.

> nobody reports on someone's 401(k) fund vanishing during a recession

Recession dips are temporary. If you're well diversified and don't panic sell the balance should recover. Whatever balance you're relying on near term should not be in something volatile like the stock market.

Re: Self directed IRAs under attack in proposed tax bill

#193

Post by belltaco » Thu, Oct 07, 2021, 4:16 PM UTC

the_optimist wrote: post #151

belltaco wrote: post #131

Earlier quoted context omitted.

>The income has already been taxed Uhh... have you heard of capital gains tax? (And capital loss deductions).

The income contributed to a Roth is post-tax. This is economically equivalent to a 401k. Equivalent.

So? There are limits to Roth contributions(and 401Ks) which have been abused by finding loopholes, which the proposed law closes. The fact that it's post-tax has nothing to do with it. Something being post tax doesn't magically make it an untouchable investment. For example capital gains tax is applied to post-tax investments.

Re: Self directed IRAs under attack in proposed tax bill

#194

Post by FooBarBizBazz » Thu, Oct 07, 2021, 4:17 PM UTC

CincinnatiMan wrote: post #111

mariojv wrote: post #73

I'd recommend reading the proposed provisions themselves directly from the Ways & Means Committee instead of the main article urging action: https://www.advantaira.com/wp-content/uploads/2021/09/WM-Tax... Highlights: 1. You can't add new contributions to tax-advantaged accounts if their total value exceeds $10 million and you make over $400K for single filers, amounts indexed to inflation. 2. There are required minim…

I think you may be wrong on point 3. > Furthermore, this section prohibits all employee after-tax contributions in qualified plans and prohibits after-tax IRA contributions from being converted to Roth regardless of income level, effective for distributions, transfers, and contributions made after December 31, 2021. This makes it sound like backdoor will be stopped for everyone, since after-tax contributions to a (Tr…

If this happens, maybe 401k providers will lose business. People often have reasonably large traditional 401ks, which they don't roll over to traditional IRAs, because having traditional IRAs interferes with the backdoor Roth (and they don't want to do a Roth conversion, because that would be a taxable event). But if backdoor Roths went away, then there'd be no reason not to roll a traditional 401k into a traditional IRA. Brokerages like Fidelity and Schwab would win, as people brought their assets over, and 401k providers would lose, since now people would take their money out as soon as they switched jobs.

Re: Self directed IRAs under attack in proposed tax bill

#195

Post by sokoloff » Thu, Oct 07, 2021, 4:18 PM UTC

wahern wrote: post #170

lotsofpulp wrote: post #155

Earlier quoted context omitted.

> But corporate interests have succeeded in selling the narrative that pensions are unreliable and inequitable, while 401(k)'s are more reliable and equitable. In fact pensions are categorically more equitable, and any less reliability (which is a dubious claim, notwithstanding the many high profile pension failures over the years--nobody reports on someone's 401(k) fund vanishing during a recession) is a consequence…

> Those lobbyists must be doing a terrible job, since the Pension Protection Act of 2006 strengthened the reliability of defined benefit pensions. Pensions were already dead long before 2006, and inevitable future pension failures baked into the system years and decades earlier. And in any event the PPA heavily favored 401(k)'s, the price extracted by Republicans for creating the Pension Benefit Guaranty Corporation.…

There are multiple types of risks in financial instruments. Risk of loss of principal is only one of them. Risk of underperforming inflation is better addressed by equities than annuities. If there was one single "best" investment for everyone, everyone who was well-informed would just buy that.

For me (and I think many others), an annuity that ends at death is not my primary goal when considering how to arrange my investments.

Re: Self directed IRAs under attack in proposed tax bill

#196

Post by belltaco » Thu, Oct 07, 2021, 4:19 PM UTC

lotsofpulp wrote: post #138

belltaco wrote: post #108

Earlier quoted context omitted.

Or maybe it's trying to close loopholes around having to pay taxes. >The whole deal is a 'we are spending tons of cash, so we need to take it from someone' plan Funny how spending tons of cash is a problem only if it benefits poor and middle class people. I never saw this outrage on trillions spent on endless wars, since that benefits rich people. But if something helps poor or middle class and hurts rich people a li…

If they wanted to specifically get rid of loopholes, they would scrap The whole employer requirement of 401k and let anyone contribute to an IRA up to the same limits for everyone. But, of course, politicians want to let big businesses maintain their competitive advantage by making 401k have higher limits than IRAs. > I never saw this outrage on trillions spent on endless wars, since that benefits rich people. Tons o…

>Tons of people have been outraged by the war

I am not talking about the war itself. I am talking about the outrage over spending on wars. For example, there is barely any debate in the public sphere about 'where to get money to spend on wars', but if it helps poor or middle income people, like say increased welfare payments, or healthcare or college, suddenly there is a huge outcry over "how do we pay for it".

Re: Self directed IRAs under attack in proposed tax bill

#197

Post by ejstronge » Thu, Oct 07, 2021, 4:19 PM UTC

the_optimist wrote: post #157

ejstronge wrote: post #45

Earlier quoted context omitted.

> The income has already been taxed This is not true - traditional IRA contributions are made pre-tax.

You’re wrong and confusing people here. Roth’s are post-tax at investment, not taxed later. Traditional and 401k are pre-tax at investment, taxed on distribution. Economically equivalent.

> You’re wrong and confusing people here

I'm sorry, but I made a factual statement. The money placed into a traditional IRA is a pre-tax contribution. The treatment of distributions is not relevant here; I am responding to a GP claim that money used in self-directed IRAs is strictly money that has been taxed.

Re: Self directed IRAs under attack in proposed tax bill

#198

Post by CPLX » Thu, Oct 07, 2021, 4:20 PM UTC

idiotsecant wrote: post #133

mmd45 wrote: post #88

Earlier quoted context omitted.

The killer is the "The bill also prevents investing in an entity in which the IRA owner is an officer." which is generally how the checkbook IRA is structured (IRA owner is the Manager of the single member LLC that is wholly owned by the IRA). Sec. 138314. Prohibition of Investment of IRA Assets in Entities in Which the Owner Has a Substantial Interest. To prevent self-dealing, under current law prohibited transactio…

This is the killer, indeed. Checkbook IRAs are amazing retirement tools if you're interested in using some of your retirement money in high-risk, high-reward investments. My retirement fund benefited enormously from the Q3 2020 crypto market gains, which would not have been possible without my LLC. It's hard to see this as anything other than removing all the peasants from the market so that the big dogs can have it…

There is literally no societal benefit whatsoever to lowering taxes in a way that incentivizes people to invest their retirement savings in crypto speculation.

The entire point of our IRA/401k laws is to give people incentives to save money for retirement in the hopes that they will have a nest egg of stable assets that will allow them to leave their jobs, making room for the next generation and reducing the burden on families and social services.

The whole system was created because penniless old people are a corrosive social problem. These reforms just illustrate how much we've lost the plot on the original idea.

Re: Self directed IRAs under attack in proposed tax bill

#199

Post by selykg » Thu, Oct 07, 2021, 4:20 PM UTC

the_optimist wrote: post #171

selykg wrote: post #132

Earlier quoted context omitted.

Actually, what I'd like to see are better opportunities for low and middle class people. I'm very clearly middle class, I likely make less than virtually every software developer reading this. I am lucky though in that I live in a low cost of living area, and managed to find a house that allows me to afford to put money into retirement accounts. I also got by reasonably well with college student loan debt. I'm relati…

This entirely fails to explain how 1) this a loophole 2) how this has disparate impact, and the sad punchline of your statement is “pay your fucking fair share” which you say to people who have saved and invested successfully, without regard to those who would hope to do so in the future. How exactly do you hope to create better opportunities for the low and middle income class? Here’s one idea: open up opportunities…

I don't think you understand how this is being used as a tax loop hole. Please go read here:

https://www.propublica.org/article/lord-of-the-roths-how-tec...

This type of opportunity is NOT available for low to middle class families, never will be. It's simply being exploited by the rich. These families live paycheck to paycheck more often than not, they're not going to have the ability to invest shares of a company or real estate into their IRA. THey're more worried about paying their bills and the next paycheck. They don't have the extra income to make these kinds of investments.

No, seriously, go read the fucking article and I think you'd understand instead of very clearly advocating for the rich like you are.

Re: Self directed IRAs under attack in proposed tax bill

#200

Post by lotsofpulp » Thu, Oct 07, 2021, 4:21 PM UTC

belltaco wrote: post #196

lotsofpulp wrote: post #138

Earlier quoted context omitted.

If they wanted to specifically get rid of loopholes, they would scrap The whole employer requirement of 401k and let anyone contribute to an IRA up to the same limits for everyone. But, of course, politicians want to let big businesses maintain their competitive advantage by making 401k have higher limits than IRAs. > I never saw this outrage on trillions spent on endless wars, since that benefits rich people. Tons o…

>Tons of people have been outraged by the war I am not talking about the war itself. I am talking about the outrage over spending on wars. For example, there is barely any debate in the public sphere about 'where to get money to spend on wars', but if it helps poor or middle income people, like say increased welfare payments, or healthcare or college, suddenly there is a huge outcry over "how do we pay for it".

I meant spending on wars. I have seen many, many editorials and popular publications talk about how we can spend $x billion in Iraq and Afghanistan but not $x billion at home for various reasons.