They actually mean to make us die penniless
It’s our own money.
In their magnanimous generosity, our taxmasters in Washington allow Americans to set aside each year some small portion of our earnings in a “tax-free” retirement savings account, called either an IRA or a “401(k),” after the section of the law that sets the rules.
And what rules they are. Apparently nothing terrifies members of Congress more — after the cold-sweat nightmare that the voters or the Supreme Court might someday limit them to the powers actually enumerated in the Constitution — than the idea that an American taxpayer might actually save enough money to leave any to his or her grandkids.
So the rules governing these tax-deferred retirement savings accounts don’t simply limit how much can be set aside each year, further penalizing anyone who tries to touch that money before the government judges them “old enough” to retire.
They also –¸here’s the part many don’t know about — require Americans to dip into and use those savings on a set schedule, whether they need to or not.
Called an RMD, the “required minimum distribution” means once a retiree is six months past has or her 70th birthday, he or she is required to draw out some of those savings, and pay taxes on them. (“Roth” IRAs are exempt.)
The amount is determined by dividing the amount of money saved by the number of years which the government figures the retiree has left to live — the goal being to require us to use up all our savings by the time we die, rather than leave us with any assets which we might (horrors!) leave as a bequest to our heirs, turning them into that most dreaded of sociopaths, the “heir or heiress.”
Socialists, you see, believe it’s bad to allow any person or persons to “accumulate” more wealth than is required to meet their needs, since they follow Marx in believing there’s a fixed amount of wealth in the world, so that if “the rich” are “allowed to accumulate too much,” the result is that others must starve.
We now know this to be wrong. Wealth is created through productive work. This work benefits all society because the wealthy must DO something with that wealth, generally investing their “surplus” at interest, launching enterprises, building factories, employing technicians and inventors, thus creating jobs.
Do we want talented entrepreneurs to close their businesses and retire after they make their first million, saying “I’ve got all I can spend before I die, and I’m not allowed to leave any to the kids or grandkids, anyway”? No. It benefits us all to encourage them to continue doing what only a small number can do well, which is to continue generating wealth, making us all better off whether they like it or not. If their kids are losers, the casinos will soon have that “surplus” off them.
Thousands of hard workers moved to Detroit to labor for Henry Ford at unheard-of high wages. Without the benefit of the machinery bought and assembled through his entrepreneurship, could those men have supported their families as well, back on the farm in Alabama? Of course not. Do we wish Henry Ford had closed his factory and retired after he made his first couple of million? That the entire edifice had been bulldozed upon his death?
But our federal tax policies still work from the assumption that it’s government’s job to make sure all our accumulated wealth — wealth our grandkids might invest in railroads, factories, or some new form of job-creating enterprises not yet imagined — is used up or seized before we die. The penalties for failing to take these “RMDs” are a whopping 50 percent of the money that “should” have been withdrawn. In effect, “Use it or lose it,” says Uncle Sam.
And many who neglect to take the first required annual payout can be forced to take two the following year, bumping them into a higher tax bracket.
Back in 1998, faced with the fact that Americans were living longer than called for in the government’s actuarial tables and thus running short of cash in their golden years, the House of Representatives considered eliminating the distribution requirements for accounts smaller than $300,000, as well as raising the age at which the mandatory withdrawals kick in, to 75.
But the plan was dumped when the taxmen crawled out from under their bridges, warning the changes would reduce federal tax receipts on the mandatory withdrawals by billions of dollars — even after congressional sponsors agreed to lower the exemption to accounts smaller than $100,000.
Today, 46.2 million Americans own IRAs, and six out of 10 households owning traditional IRAs that made withdrawals in 2006 did so only to satisfy the RMD requirement.
“Exempting individuals whose account balances are below a specified threshold could spare millions of people from having to comply without compromising the main purpose of this provision,” says J. Mark Iwry, former Treasury Department attorney and senior fellow at the liberal Brookings Institution.
That would be a good start — as would raising the age at which withdrawals are mandated.
But the more important question is why the government should have any say in how those funds are used, at all.
If Americans are “allowed” to save for their old age a certain portion of their own earnings, free of a socialist “leveling” tax which the Founders did their best to ban in the first place (successfully, for 124 years), that should be the end of it. Let Americans, once retired, use that money, or invest it, or leave it to their kids or grandkids, tax free.
If that cuts federal tax receipts, then Washington’s capacity to do mischief with those funds will be reduced by that amount, and so much the better.