Author Topic: RANT - Too many accounts!  (Read 3511 times)

jmusic

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RANT - Too many accounts!
« on: March 17, 2015, 04:39:48 PM »
Is it me or is all the rules for creating different buckets for tax treatment of investments, based ONLY ON CONGRESSIONAL WHIM, just absolutely insane??

I myself have:
TSP (401K), which could have a mix of Roth, Traditional, and tax free contributions in it, limited investment choices.
Roth IRA
Trad IRA
After tax investment account

Other possibilities: HSA, SEP IRAs, Solo IRAs, Coverdell ESAs, UGMA/UTMAs, Annuities, the list keeps going...

Why couldn't we just keep things simple!!! 

What I would propose: A single "tax advantaged" account, like a tIRA but with MUCH higher contribution limits (say $60k/yr) and maybe start phasing it out at $250k/yr of income, get rid of the employer-tied 401ks, and no early withdrawal penalties (just pay taxes on it).





dandarc

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Re: RANT - Too many accounts!
« Reply #1 on: March 17, 2015, 04:44:16 PM »
But then the game wouldn't be as much fun.

Congressional Whim is probably your best bet as an explanation.  Easier to get re-elected if you helped enact a new program.  Retirement is already not-that-sexy, so just modifying an existing one isn't a big sell.  So new types of accounts tend to pop up rather than the reverse.

Also - there is a huge industry created by the complexity of the tax code.  Lots of inertia avoid simplifying things from that as well.

jmusic

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Re: RANT - Too many accounts!
« Reply #2 on: March 17, 2015, 04:49:44 PM »
But then the game wouldn't be as much fun.

Congressional Whim is probably your best bet as an explanation.  Easier to get re-elected if you helped enact a new program.  Retirement is already not-that-sexy, so just modifying an existing one isn't a big sell.  So new types of accounts tend to pop up rather than the reverse.

Also - there is a huge industry created by the complexity of the tax code.  Lots of inertia avoid simplifying things from that as well.

True that...

Refrain of the poor:  "Where's my hand out?"

Refrain of the middle class:  "Where's my tax deduction?"

Refrain of the rich:  "Where's my lobbyist?"

RunHappy

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Re: RANT - Too many accounts!
« Reply #3 on: March 17, 2015, 05:11:50 PM »
for some 60% could be 18000/yr (401k).  I don't ever see the 401k or IRA limits rising to the point where people are able to put a significant portion of their income into these vehicles.

Keep in mind these limits are not limits on how much you are allowed to save, the limits are on how much tax revenue the government is willing to forego.  You don't have to spend a dime of your income, but the government isn't going to let you put all of it in a tax shelter.

BTW, yes i agree it would be a whole lot better if there was just one tax-advantaged savings structure.

skyrefuge

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Re: RANT - Too many accounts!
« Reply #4 on: March 17, 2015, 05:53:28 PM »
Congressional Whim is probably your best bet as an explanation.  Easier to get re-elected if you helped enact a new program.

That's certainly part of it, but another huge part is the fact that none of this was created as part of some "master plan". It was all just cobbled together randomly over time (with the 401(k) being a particularly notable example of something that wasn't even "created", it was "discovered" by an accountant).

Certainly it would be nice to say "ok, now that we understand what we want, let's tear down this cobbled mess and rebuild it sensibly from the ground up". But many of these accounts have differing reasons for existing, and zero of them exist "to give a tax break". They're to "encourage retirement savings", or to "help pay for health care costs" or to "help you get an education". The tax break is simply the common motivational mechanism which they all happen to share. Wishing there could be just "one thing" is kind of like saying "why do we have all these different things with wheels and engines? Motorcycles, cars, pickup trucks, dump trucks, trains...can't we just consolidate them all into a single type of vehicle?" No, because the commonality of wheels and engines doesn't mean that they all serve the same purpose.

SaintM

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Re: RANT - Too many accounts!
« Reply #5 on: March 17, 2015, 06:32:13 PM »
Why limit yourself to a total of $23,500 a year in a Roth or traditional IRA and 401k?  Why not add real estate, partnerships, and life insurance to the mix?  You can defer income taxes until your death, at which point the step up in basis makes the entire gain go away.  Then you heirs can do the same.

jmusic

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Re: RANT - Too many accounts!
« Reply #6 on: March 17, 2015, 07:17:01 PM »
That's certainly part of it, but another huge part is the fact that none of this was created as part of some "master plan". It was all just cobbled together randomly over time (with the 401(k) being a particularly notable example of something that wasn't even "created", it was "discovered" by an accountant).

Certainly it would be nice to say "ok, now that we understand what we want, let's tear down this cobbled mess and rebuild it sensibly from the ground up". But many of these accounts have differing reasons for existing, and zero of them exist "to give a tax break". They're to "encourage retirement savings", or to "help pay for health care costs" or to "help you get an education". The tax break is simply the common motivational mechanism which they all happen to share. Wishing there could be just "one thing" is kind of like saying "why do we have all these different things with wheels and engines? Motorcycles, cars, pickup trucks, dump trucks, trains...can't we just consolidate them all into a single type of vehicle?" No, because the commonality of wheels and engines doesn't mean that they all serve the same purpose.

Regarding the 401K origins:  That's right, I'd forgotten about that.  IIRC it was sold on the general public as a way for big corps to stop using pensions.  Not that that's entirely bad as it got rid of the "golden handcuff" factor, but it certainly wasn't with our best interests in mind.

Regarding the different purposes of money:  That's just what the government is trying to incentivize (insert flavor of the month).  We could just as easily say we'll incentivize "saving for the future" and accomplish the same thing!  It would also (finally) give the average Joe a way to actually do effective tax planning, but of course that's exactly why it will never happen...

jmusic

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Re: RANT - Too many accounts!
« Reply #7 on: March 17, 2015, 07:19:18 PM »
Why limit yourself to a total of $23,500 a year in a Roth or traditional IRA and 401k?  Why not add real estate, partnerships, and life insurance to the mix?  You can defer income taxes until your death, at which point the step up in basis makes the entire gain go away.  Then you heirs can do the same.

Real estate is definitely on my mind, but the prices are absolutely bonkers in SoCal, so much so that I'm wondering if we're in "Housing bubble round 2!"  I'm moving to Virginia soon and I'll start scooping up some investment properties there...