Memo to Obama: Get Real Regarding Retirement Savings Policies!

In recent months, there have been ruminations coming forth from various government pooh-bahs relative to the potential of trying to limit the amounts that may be contributed to/accumulated within IRAs and various forms of retirement savings vehicles which have been tax favored for lo these many years.  The government just needs the money, don’t ya’ see.

So here comes the Government Accountability Office (GAO) with a little bit of sobering news on the subject, based on its findings that relatively few taxpayers actually have “large” IRAs, which seem to be the main target of potential revenue-raisers’ scrutiny.  Indeed, so-called “large” IRAs have been deemed to be accounts worth $5 million or more.  And according to the GAO, there are only a little over 9,000 of those critters in existence – not exactly covering anywhere near the majority of taxpayers.  Further, based on 2011 statistics, while an estimated 43 million taxpayers had IRAs with a total reported fair market value of $5.2 trillion, 99% of those IRAs were worth $1 million or less (not exactly indicative of a comfortable launching pad for a retirement career which, these days, might last 30 years or more)!  But beyond all that, GAO finds that most eligible taxpayers do not even take the Revenooers up on their offer to save for retirement in a tax advantaged way – a significant looming problem as the population ages.

The GAO’s report says that in 2014, existing tax law favoritism for IRAs will result in Uncle Sam forgoing an estimated $17.5 billion in net income tax, given the tax deductibility of most IRA contributions and the tax revenue foregone on the earnings within IRAs on invested funds.  But does that mean that rather than encouraging taxpayers to use tax-advantaged retirement savings vehicles such as IRAs, Obama should lower the boom and take away some of the tax benefits, as opposed to finding his operating cash somewhere else in the otherwise bloated Federal budget?  We don’t think so.

And while we’re on the subject, another interesting finding of the GAO is the point that a bloke who had made the maximum permitted IRA contributions from 1975 through 2011, and invested the funds in a Standard & Poor’s 500 indexed portfolio of equity investments would have accumulated a balance of about $730,000!  Compare that to what would have been accumulated via a more conservative investment strategy (subject to less volatility and risk, growing from a rate of return based on historical interest rates reported by Social Security trustees for special issue government bonds):  about $303,000!

Keep an eye on this one, and don’t let the politicians screw up retirement savings as they have so many other important areas affecting all of us.

CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters.  You should consult your CPA regarding the implications to your own particular situation.

Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno.  He may be reached at 831-7288, welcomes comments at jquinn@ashleyquinncpas.com, and invites readers to consider his other commentary at http://blog.nolo.com/taxes.

Leave comment