Private savings for retirement represent one of the largest private asset pools in the United States. This includes personal savings accounts, IRAs, pensions, and 401(k) plans. The 401(k) holdings of Americans stood at $3.1 trillion at the end of 2010, according to the Investment Company Institute. As Uncle Sam looks for new ways to fill the holes in America’s budget, seizing the funds in these accounts becomes increasingly attractive.
It’s also perfectly legal, believe it or not. While you might think of it as stealing, rest assured that the government won’t. In fact, the framework is already in place for taking your hard-saved dollars and re-purposing them. Uncle Sam has a number of perfectly legal methods for separating you from your retirement savings – and these are just the ones we know about!
Ending Tax Breaks
Most of the current retirement plans in America are based around government tax deferment programs. You pay taxes on money going in but no taxes on distributions, for example, or perhaps the contributions to the accounts are tax deductible, saving you money on your income taxes. The little loopholes allow you to skip out on taxes on your savings entirely, or at least postpone paying them until a later date.
Unfortunately, as tax breaks designed to incentivize retirement savings were created by Congress, they could also be repealed by Congress. The net effect is to remove tax protection from your retirement savings and let the IRS get its hands on more of your money each year.
With the wave of a pen, many of the advantages of Roth IRAs or 401(k) plans could be erased. Think the government wouldn’t dare? With a few speeches about how we all need to make sacrifices and reminders of our debts, lawmakers would certainly end retirement tax breaks.
Forcing Plan Distributions
One of the ways Americans keep their retirement savings out of government hands is by not taking distributions until they hit retirement age, or by just taking the minimum distribution amounts. Congress could force annual distributions, raise distribution requirements, or lower mandatory distribution ages to bring your money out to where it can be taxed. As a more minor tweak to the system, they might be able to push this through without many Americans realizing what had happened.
Once they force plan distributions, the next logical step is to up the tax rates on those distributions, notes NewsMax. By making you get it out from under retirement plan protections and boosting the tax rates, the government could legally take your money to continue funding all their little pet programs indefinitely.
Seizing Private Pensions
In the most brazen, yet legal scenario, the Federal government could simply seize your personal pension. The proposal has already been made by Democrats, who would like to see your personal savings and pensions (which obviously you can’t manage yourself) under the “safe hand” of government. In 2008, House Democrats held hearing on requiring workers to give up their 401(k)s and pensions in exchange for a new “lifetime income option” from the government.
This “lifetime income option” is presented as a safer alternative to the ups and downs of the market. Yet in the fine print of the recommendations, citizens would get a monthly stipend of $600 – no more. Hardly the same as what is possible for smart savers not hanging on the government’s every word! In the same safety-first set of discussions, the possibility of rolling private pension arrangements into Social Security was reviewed. After all, why have two retirement systems when one would be just fine … and one really needs the private savings of the other to stay afloat?
In case you think it could never happen, Argentina took $29 billion of private savings from its pension accounts in 2008 to fund federal programs, and in 2011 Ireland raided private pensions to bail out its banking institutions. Congressional leaders would simply be “moving in line” with international standards to take the money, and now have international court precedence allowing the seizures.
Where will the line be drawn? “I think Congress will go after all of it,” notes Megan McArdle in The Atlantic. As a result, smart readers will have to stay one step ahead of the government in managing their retirement savings. It’s hard to keep governments away from the big pools of money retirement accounts represent, but small or large, private retirement accounts should be just that – private