From: markr@mot.com (Mark)
Subject: Re: Question about more generous IRAs.
Reply-To: markr@mcil.comm.mot.com
Organization: MCIL
Date: Sun, 13 Sep 1992 05:25:24 GMT

In article <23169@sybase.sybase.com> ganesh@madras.sybase.com (Ganesh Sundaresan) writes:
>|> 	Some time ago I read that as part of the presidents growth
>|> package, there is a provision to expand the salary limit, for an
>|> individual or couple, at which the IRA becomes deductable.
>|> Does anyone know if this is still being discussed and, if so,
>|> the probability of it being passed?  What are the new income limits
>|> for full or partial tax deduction?
> 
> More generally, isn't anyone other than me paranoid about
>the persistent and ongoing Government fiddling, and proposals
>to fiddle, with the rules regarding 401(k)'s, IRA deductibility 
>and the taxes on distributions, premature or otherwise? 

It has nothing to do with being paranoid, we must analyze the facts
and arrange our financial life based upon both current rules and
opportunities and based on the probability of changes in some of
those rules.

>Especially given the historically high Federal debt to GNP,
>and a languishing tax base in a prolonged recession, I would 
>think the temptation to fiddle (to the taxpayer's disadvantage,
>of course) should prove irresistible. The recently passed bill
>regarding mandatory witholding on direct 401(k) distributions
>to a former employee rang some serious alarm bells in my head.
>
>I wonder if the Feds have a confirmed history of "bait-and-switch" 
>when it comes to tax shelters. It appears that the tax reform act 
>of '86 basically scr*wed everyone who thought REITs and real estate 
>limited partnerships were a great idea due to their tax-preferred 
>status, and poured money into them.

Every time the govt. changes tax law, someone's plans are messed up
somewhat.  I guess that could be described as bait-and-switch.
I think a tax law passed which states that the law may not be changed
except under extreme circumstances would be a good thing.

>Today, I notice that 
>financial planners of every ilk are recommending that one ought 
>to sink the maximum possible into a 401(k), then possibly into 
>deductible and non-deductible IRA's as well. This would be wise, 
>of course, should no changes occur in the current rule regarding a
>"mere" 10% penalty on early withdrawals, not to mention
>the tax computations for post-retirement withdrawals. 
>I wonder if it's going to stay this way, given all the 
>money that's pouring in.

Probably not.  They will use the excuse that the taxes they place on
people who saved for the future are going to help the poor people who
didn't save.  For example, the new tax on 401(K) distributions is to 
help extend unemployment benefits.  The next thing will be a small
tax to help fund underfunded pension plans. (which are insured by the
govt.)

>Any thoughts?

Of course, what you describe above has been taking place already, and will
continue.  Witness the concept of 'source tax'; certain states have this tax
law in place and are recently enforcing it in the light of huge budget deficits.
(source tax is a tax on retirement distributions which may have been earned
in the state you lived in 30-40 years ago.  If you earned money in CA for 10
years and saved a bit for retirement, then you move, then you retire 30 years
later far from CA, CA reserves the right to tax the distributions from the money
you saved while working in CA.  This is current law)

If anyone knows any more details about 'source tax', such as which states
have such beasts, please followup.

Mark