I should start today's column with a disclosure. I have only a very small portion of my personal assets in retirement accounts. That may seem like an odd admission for a financial advisor who manages significant retirement assets, but since I was quite young I have never been a fan of IRA's for most people. It stems from my basic, and healthy, distrust of government.
The IRA was based on the simple concept that you could defer taxes on some of your income until you retired. It would also grow tax deferred. Tax deferral sounded like a great idea. My problem with it was by agreeing to the IRA, I was agreeing to let the government determine what my tax bracket would be 20 or 30 years down the road. As a young married couple we had lots of tax deductions so we were in a relatively low tax bracket. Putting money in an IRA back then seemed like saying, "I won't pay taxes now at my low bracket but when account gets really large at the time I reach retirement, you go ahead and tax me at whatever rate you want then." Of course the government insisted our tax brackets would be lower when we retired. If you believe that...
What I did not anticipate as a young investor is what the government has recently done to all retirement investors through the new Department of Labor ruling that will take effect next year. The ruling will have the effect of greatly limiting the types of investments you can hold in a retirement account. There is not place here for a detailed review of this policy, but in short, in a government effort to help protect the retirement assets of Americans, regulators have determined to exercise a stronger influence over those accounts. The chilling effect of the ruling will be greatly reduced investment options for most retirees in their IRAs and other qualified accounts.
I understand the government's inherent desire to protect us, but I wonder if they are the ones best qualified to regulate our relationship with our financial advisors, or the investments we choose to make. Many wonder where government gets its authority to involve itself in how we manage our own private financial affairs. The Department of Labor, part of the Executive Branch, is using the ERISA act of 1974, which was originally written to safeguard pension assets, to now claim jurisdiction over all retirement assets.
I am personally deeply concerned about this precedent and suspect it may only be the first step. After all, according to the Federal Reserve Board of Governors, Americans currently hold more than $20 Trillion dollars in retirement accounts. That's a lot of money, even in Washington. It comes as no surprise that some politicians want to control it. As we move closer to implementation, I will try and offer more information on how this new regulation may affect you and your investments.
Hi, I'm Dan. I'm a CFP® Professional.
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