Will the Republicans “Rothify” Your Retirement?
- The tax cut that might raise your taxes
- The “Rothifying” of your 401(k): An update
- More record highs, while Buffett talks out of both sides of his mouth
- The one undisputed good thing Trump has accomplished in 9 months
- Location, location, location: How legal pot is raising home values
- Zimbabwe sliding back into hyperinflation… readers rip on Rickards’ open letter to Trump… and more!
In what world does a “giant, beautiful, massive” tax cut — as promised by the president last week — end up raising taxes on nearly a third of middle-income Americans?
At least one Republican senator in the GOP’s slender 52-seat majority says he’s not on board with his party’s much-ballyhooed tax plan. Not in its present form.
Sen. Paul linked to a study by the Urban-Brookings Tax Policy Center that concludes nearly 30% of taxpayers with incomes between $50,000–150,000 a year would see their taxes go up.
Establishment Republicans say the study is bogus. House Ways and Means Committee Chairman Kevin Brady says it relies on “a variety of overreaching and unrealistic assumptions about policy decisions members of Congress still have to make.”
Well, he has a point. The proposal released last week has all of nine pages.
Certainly there’s more meat on the bones now than there was in the White House’s one-pager last April that we likened to “a half-assed term paper.” But many details remain to be hashed out… and Republican leaders in Congress are keen for a “revenue neutral” plan. That is, every dollar of tax cuts would be offset by a dollar of new revenue raised by closing “loopholes.”
“Advocates Fear Trump Tax Plan May ‘Rothify’ 401(k) Plans,” says a headline at MarketWatch.
We warned you about this five months ago. The mainstream is starting to catch on.
Gary Cohn, the former Goldman Sachs president who’s now director of the White House National Economic Council, is eager to do away with the pretax benefits of 401(k)s and other retirement accounts.
That is, future contributions would be switched without your consent to a Roth-style plan — taxed upfront, while your withdrawals during retirement would be tax-free (hypothetically — more about that below). By one estimate, the move would deliver Uncle Sam a $1.5 trillion windfall over the following 10 years.
To be sure, there’s nothing specific about this in the nine-pager released last week — only mushy language about aiming “to maintain or raise retirement plan participation of workers and the resources available for retirement.”
But “we remain concerned with reports that some lawmakers may be considering ‘Rothification,’” says a statement from the Save our Savings Coalition — an outfit made up of everyone from the AARP to T. Rowe Price.
Indeed, Rothification has been “on the table” for three years.
Shortly before his retirement from Congress, House Ways and Means Committee chairman Dave Camp proposed Rothifying all 401(k) contributions exceeding half the annual limit (which this year is $18,000).
Granted, we’re getting ahead of ourselves here. There’s no guarantee Rothification will end up in the tax plan, or for that matter that any tax plan will pass Congress. (Under present rules, Congress still has to pass a budget for fiscal 2018 first — and that’s going to be a tough climb.)
But one finance pro is already anticipating the worst — Rothifying future retirement contributions first, and then Rothifying your existing account. That would mean your entire account would immediately become taxable income.
“Plan participants could find themselves forced to transfer their savings to a Roth plan, which means they would have to pay a lump sum to the IRS,” declares Chris Markowski of Markowski Investments, writing last week at The Hill.
“With the government desperately trying to generate revenues, seizing or heavily taxing retirement funds might become a possibility. This has occurred in countries like Ireland, Hungary, Argentina and France.”
We’ll go one step further: What guarantee do you have that Roth withdrawals won’t be taxed in the future?
The appeal of a Roth, after all, is that while your contributions are taxed upfront, the withdrawals are tax-free. It’s especially appealing if you’re lucky enough to have an income in retirement that’s nearly as high as when you were working.
“Holders of Roth IRAs may be in for a rude shock,” warned Steve Forbes in 2013. “Their contributions have been made with after-tax dollars, with the promise that the ensuing benefits would be exempt from federal income tax. Slapping a special ‘emergency’ levy on these assets will become an irresistible temptation for politicians as the pot of assets gets bigger.”
There’s been just enough mainstream discussion of this possibility over the years that in 2012, we offered the following guidance to readers of the gone-but-not-forgotten Apogee Advisory: Don’t put new funds into Roth accounts, and don’t convert regular 401(k)s and IRAs into Roths. “Use conventional 401(k)s and IRAs instead,” said our fearless leader Addison Wiggin, “and grab the tax savings now, while you still can.”
Here’s our bigger point: The federal government reserves the authority to change the rules of retirement at any time.
Remember when Social Security benefits weren’t subject to income tax? Nowadays, depending on your income, up to 85% of your benefits are counted as taxable income.
The feds started this grab, by the way, under President Reagan. It doesn’t matter which party is in power.
The ugly fact is that there’s only one kind of “retirement security” that matters — having a big enough pot of money that you’ll still be able to live comfortably no matter what the government does.
How big a pot? That depends on what “living comfortably” means to you. It’s different things to different people.
But we’re reasonably sure you’d agree that if you could turn $1,000 into $462,020 in only six weeks… you’d be off to a good start.
That’s the promise behind the “42-day retirement window” revealed to us recently by trading veteran Alan Knuckman. The window opens next week. The last time it did, earlier this year, staggering gains were there for the taking — 540%, 2,369%, even 14,611%.
If you don’t want to miss out this time, Alan is hosting an exclusive live event from Chicago this Thursday at 1:00 p.m. EDT. Access is absolutely free; as usual, all we ask is that you sign up with your email address so we set aside enough bandwidth to accommodate everyone. Here are the essential details and the signup link.
Another day, another batch of records for the major U.S. stock indexes — and Warren Buffett says that’s not unreasonable.
“Valuations make sense with interest rates where they are,” he told CNBC this morning. That is, in a world of low yields, big money will naturally gravitate away from fixed-income vehicles and toward stocks.
Which is fine as far as it goes. But if valuations really “make sense,” then why is Buffett’s firm Berkshire Hathaway sitting on $100 billion in cash? Why isn’t he putting that money to work?
Yes, he dropped an undisclosed amount of that cash today to buy the Pilot and Flying J truck stop chains. But we suspect Buffett is keeping ample “dry powder” to buy companies at more attractive prices — after the market takes a spill and valuations make far more “sense.”
As we noted in our 10th anniversary episode last spring, it would hardly be the first time the Oracle says one thing and does another.
In the meantime, the Dow has crested the 22,600 level, while gold languishes at $1,273.
Is the Donald “the Deregulator”?
Trump’s produced fewer regulations than any president since Reagan during his first nine months in the White House. The Trump administration’s efforts to roll back the regulation state is remarkable; the Competitive Enterprise Institute reports significant regulations “are down an astonishing 58% compared to Obama” at this time last year.
Consider the following stats from the report, compiled by Matt Welch at Reason:
- Trump’s Federal Register’s page count is 32% lower than Obama’s a year ago
- Trump has issued 18% fewer rules than Obama over the same time period in 2016
- “Significant” rules with an impact of $100 million or more are down a whopping 58% compared with Obama
- Proposed rules in the pipeline are down 28% and significant proposed rules are down 77% compared with the same nine-month period of the Obama administration last year.
Now it’s making more sense to us why small-business optimism remains high, even though the big promises about Obamacare repeal, tax cuts and public works spending haven’t yet come to pass.
Home sweet home… and the pot business next door
We can’t help wondering if realtors might start including proximity to pot retailers in their real estate listings. You know, alongside great schools, shopping and restaurants.
You’d assume a cannabusiness in the neighborhood would lower property values… Not so fast, says Ray Blanco, our penny pot stock expert.
“According to a study just published in the academic journal Real Estate Economics,” notes Ray, “homes located near legal pot retailers saw a significant increase in value versus those farther away.
“For instance, single-family homes in Denver within 0.1 miles of pot shops rose in value 8.4% more than neighboring homes located farther from weed retailers.” That amounts to an average increase of $27,000 per house.
Pot purveyors, it seems, are being careful about keeping everything as respectable as possible in jurisdictions where the weed is legal. “The net result,” Ray says, “is a clientele that’s more Starbucks than scumbag.
“As new data continue to roll out, disproving the old flawed assumptions and showing hard benefits for communities that legalize weed,” says Ray, “those arguments against legalizing marijuana are falling flat.
“And our portfolio of penny pot plays,” Ray reminds, “is positioned to let us ring the register again and again along the way!”
The country that became a poster child for hyperinflation a decade ago is in danger of reclaiming its place in infamy.
As we chronicled at the time, Zimbabwe’s currency crashed in 2008 — inflation peaking at 500 billion percent.
The aging dictator Robert Mugabe remedied the situation by allowing his people to adopt the U.S. dollar, among other foreign currencies, as the de facto national currency.
But Mugabe couldn’t leave well enough alone: A year ago, The 5 took note when he announced plans to introduce legal tender, pegged to the dollar, called “bond notes.” That was his ruse as the government was running short on cash to pay civil servants and buy essential imports.
A year later, Zimbabweans are getting edgy — according to a report from the AFP newswire: “Bond notes dispersed by banks and ATMs are in theory worth the same as the U.S. dollar, but consumers worry the currency could be rendered worthless like the old Zimbabwe dollar that was scrapped in 2009.”
Thus people are stockpiling food and fuel. Shortages are developing. Shades of the bad old days. “We are already witnessing shortages of basic commodities,” says Peter Mutasa, president of the Zimbabwe Congress of Trade Unions. “The situation has been triggered by lack of confidence in the bond notes. We are being driven to barter for goods as there is no hard currency in the banks.”
In response, Mugabe is resorting to the time-honored tradition of rulers everywhere at all times — blame the “speculators.”
The AFP story points out that “currency traders who gather near the foreign bus terminal in Harare now offer to exchange one U.S. dollar for 1.37 bond notes — an illegal transaction that underlines the bond note’s weakness.” Likewise, retailers are charging one U.S. dollar for a bar of soap, but 1.30 bond notes.
Cue the outrage from Mugabe: “There are those eager to manipulate the currency so that they can trigger inflation [and] cause panic buying,” he says. “Those are the mischief-makers in our midst.”
We’d contend the 93-year-old despot is the real “mischief-maker” here, but OK…
“Where’s the ‘letter’?” a reader writes after our sales-driven Sunday edition of The 5 promised a “controversial open letter to President Trump”
“I didn’t see no frickin’ letter! All I felt was hot air!”
Complains another, on the same sales message: “I know you have to continue to market your products. But do you have to use the BS line ‘fake news’? That makes your organization look very unprofessional.”
The 5: We published the full letter at The Daily Reckoning on Sept. 8. You can read it right here.
We chose to merely excerpt it in the sales message for Rickards’ Strategic Intelligence upon which the letter is based. No, Jim hasn’t gotten a reply.
As for “fake news,” we’ll readily concede — as we have for months — that the term means whatever the user wants it to mean. Kinda like “terrorism.” But the term does have resonance for many readers and we’re not above resorting to it in the course of hawking our wares.
That said, we always want to be able to stand behind whatever we publish and say we’re proud of it. So while we can never be all things to all people, we thank you for the reality check…
The 5 Min. Forecast
P.S. “Peace of mind and no more worries!” a reader wrote us in a recent survey, asking what kind of a difference a $464,020 gain in only 42 days would make for their retirement.
“I could be comfortable and not worry about the ‘What happens if’ and not be so controlled by the government,” says another.
There’s still time to take part in this survey… and to sign up for Alan Knuckman’s live training event this Thursday at 1:00 p.m. EDT. Then, he’ll reveal how what he calls the “42-day retirement window” could deliver peace of mind for you. Sign up for access at this link.