Investing in taxable accounts vs. IRA's and 401K's

[gus2505]

Everyone talks about how IRA's and 401K's are great investment vehicles because they are tax deferred.

With the amount of debt that we have in the US, it is possible that tax rates can go sky high in the years to come.

Also with a large percentage of the population NOT saving much for retirement, I can see the savers subsidizing the non-savers in some way.  This can come in the way of tax rates, denying social security to those with retirement funds, etc.

Plus your money is tied up unti age 59 1/2, and Congress can change the rules anytime.

Roth IRA's seem like a good deal on the surface but who's to say that Congress won't change the rules and tax those who withdraw (i.e. being taxed twice)?

With taxable investing, you are taxed on your salary plus capital gains.  However, there is more flexibility and the funds are not tied down until one is 59 1/2

What are your thoughts on this?  Looking for some ideas on what percentage to invest in an IRA (if anything), Roth, and/or taxable. 

[craigr]

These are all possible outcomes. I'm kind of cynical on this topic and tend to agree with you in many aspects. Save too much and you'll be denied somehow. In Argentina in 2008 the government just came in and took the funds:'

http://online.wsj.com/article/SB122460155879054331.html

Hemmed in by the global financial squeeze and commodities slump, Argentina's leftist government has seemingly found a novel way to find the money to stay afloat: cracking open the piggybank of the nation's private pension system.

The government proposed to nationalize the private pensions, which would provide it with much of the cash it needs to meet debt payments and avoid a second default this decade.

...

Argentine President Cristina Kirchner said the move to take over the private pension system was aimed at protecting investors from losses resulting from global market turmoil. Funds in the system, which is parallel to a government pension system, are administered by financial firms. The private system has about $30 billion in assets and generates about $5 billion in new contributions each year.

So you never know what could happen. In the US if there were enough people clamoring for money they could vote themselves the funds of those that chose to save. Who knows?

There are all kinds of risks so you diversify in case of problems. It's the only thing you can do.

[shoestring]

Now please no one take this as a harsh tone, but I hear this kind of thing a lot, and I think people are the victims of their own imaginations sometimes.

Everyone talks about how IRA's and 401K's are great investment vehicles because they are tax deferred.

With the amount of debt that we have in the US, it is possible that tax rates can go sky high in the years to come.

It's also possible that 100 years from now, the US will still be around and our creditors will have collapsed.  Who knows?

Members of Congress and most industries, groups and individuals don't like paying taxes, remember this always.

Also with a large percentage of the population NOT saving much for retirement, I can see the savers subsidizing the non-savers in some way.  This can come in the way of tax rates, denying social security to those with retirement funds, etc.

This is in fact happening now.  Consider that already they're working on having it where you pay SS tax on more income than you can receive benefits for.  Consider all the 'boomers and before living off of fat SS checks (with more generous provisions from older policies) that they are grandfathered in to.

Means testing is already in place.

http://www.washingtonpost.com/business/ ... story.html

This problem has been around for some time now.  Not to be too blunt but so what, it's happening already and so far you're still better off funding your retirement accounts.  Whether this will be true or not in the future, how can we possibly know?

I have to make my decisions on what is concrete or at least plausible, speculating what if this what if that will just lead to analysis paralysis.

Plus your money is tied up unti age 59 1/2, and Congress can change the rules anytime.

Yep.  Sucks doesn't it?  However the precedent for all things of this nature is existing participants are grandfathered in.  Granted we don't know that will be the case, but we don't know much of what's going to happen anyway do we.

Plus here's a clue for you:  If they want you to make withdrawals they can tax, wouldn't they actually lower the age?

Roth IRA's seem like a good deal on the surface but who's to say that Congress won't change the rules and tax those who withdraw (i.e. being taxed twice)?

Who's to say Congress won't tax you for flatulence, being overweight, living in an unsafe neighborhood, or having too many windows in your house?

And the thing is, even if they do that, at least I got some years of nontaxable gains in.  It could still be a losing proposition but it's not like it's not like I didn't get anything for taking the chance.

With taxable investing, you are taxed on your salary plus capital gains.  However, there is more flexibility and the funds are not tied down until one is 59 1/2

So everything else we've talked about is changed to screw you (or screw you even more in some cases)  but this is ceteris paribus because we know all these other things will change in the future, but not this.

What are your thoughts on this?  Looking for some ideas on what percentage to invest in an IRA (if anything), Roth, and/or taxable. 

Okay I'll be serious now, I've been kind of jerk to this point but on purpose to illustrate the point... we just don't know, it's all speculation, however reasonable it may be.  We can't know.  Seriously do the best arrangement that you can right now, with things as they are, and if stuff happens, adjust.

Also consider who Congress is, well, who they are "flocking" with if they go after IRAs, etc.  Much of the money in them is tied up in the people who own Congress.  It makes Exxon Mobil and Disney and all those other people super happy when I get paid and I buy their stocks and bonds etc.  If Congress goes out in a limb and says hey we're cutting out the incentives for this schlub to give you his rubles, they wouldn't be terribly happy.

That's not to say they won't do it, I'm just pointing out that there's multiple sharks circling your money barge, and when the sharks can't agree on who gets to eat your legs, this is a good for you.

The final point I want to make is that the government can kick your door down literally or otherwise, and take everything you have at any time any way.  Unless you see it coming somehow well ahead of time, you can do nothing about it effectively, because they control your access to all avenues of escape, such as foreign lands, the sea, the air, outer space, etc. 

I hate to be a sucker, but I guess the only thing you can do is try to be involved in civil policy decisions so this doesn't happen, and quietly make your peace with yourself what you are going to do if it does happen.

Overall, I do not try to make moves based on unknowable circumstances even if they seem plausible until there's something more concrente than my own speculation, however well founded it may be.

Personally, I just split it up to some arbitrary formula based on the tax brackets and an arbitrary effective rate I'm willing to pay in a year, right now I'm something like 45/45/10 401k/Roth/Taxable but that will probably change as the tax tables mutate each year.  For example I may decide that in 2012 I am only willing to pay a 20% effective rate, so I figure out then how much I want to save, and then I can figure out how much I'm going to defer, etc.  I'm guessing, there's no real system to it beyond it "feels right".  I do like the idea of having a chunk in a Roth which can theoretically be accessed at any time.

[clacy]

I think there would be an all-out, armed civil war if retirement assets were somehow confiscated outright.  They will probably try to do it in very subtle, back-door ways however.

Even more subtle, they will probably just transfer this wealth via inflation and negative real interest rates..... Oh wait, that might already be happening as we speak. 

[dualstow]

I often ask people if there is such a thing as putting too much money into retirement accounts. They always say that yes, it's possible.

I started late, though, and at ~age 40, I'm putting in the maximum.

[lazyboy]

The government is giving an immediate reward for saving with tax advantaged accounts. I'm a retiree and have been drawing on my tax deferred accounts for 5 years. I started savings in this way as soon as I found out about IRAs back in the early '80s. And am I glad I did!  I was able save a percentage of my pay, sock it away, differ taxes and get matching money, in stocks, for a percentage of my contributions, from my employer. It worked for me to save in that way. Now years later I'm reaping the rewards of being a consistent saver. The tax deferral and the penalty to stay the course until age 59 helped me to save and to keep that discipline going for all the remaining years I worked.  Time goes by more quickly than you may think. As far as access to your money, my 401K had rules that would have allowed me to borrow in very advantageous way. Will the whole game be undermined somehow tomorrow? Who the heck knows! I wouldn't bet on it. I would advise choosing what works over conspiracy talk. Nothing is for certain, as they say, except death and taxes. So you have to think it through. The question to ask is: do I have the discipline to save on my own without an IRA, 401K or Roth, and how much? There may be an advantage to saving in a taxable account and using it to buy gold, for example. 

[lazyboy]

These are all possible outcomes. I'm kind of cynical on this topic and tend to agree with you in many aspects. Save too much and you'll be denied somehow. In Argentina in 2008 the government just came in and took the funds:'

http://online.wsj.com/article/SB122460155879054331.html

Hemmed in by the global financial squeeze and commodities slump, Argentina's leftist government has seemingly found a novel way to find the money to stay afloat: cracking open the piggybank of the nation's private pension system.

The government proposed to nationalize the private pensions, which would provide it with much of the cash it needs to meet debt payments and avoid a second default this decade.

...

Argentine President Cristina Kirchner said the move to take over the private pension system was aimed at protecting investors from losses resulting from global market turmoil. Funds in the system, which is parallel to a government pension system, are administered by financial firms. The private system has about $30 billion in assets and generates about $5 billion in new contributions each year.

So you never know what could happen. In the US if there were enough people clamoring for money they could vote themselves the funds of those that chose to save. Who knows?

There are all kinds of risks so you diversify in case of problems. It's the only thing you can do.

The question of Argentina is a good one to ponder. Could that happen here? Who or what is to blame for their problems? I really don't know enough of what's going on there but reports about their crises were certainly bad. Blame has been directed at the international bankers, which seems to be a recurring theme:
http://www.marketoracle.co.uk/Article32222.html

Now here's a report that seems much more optimistic, although it does indicate they still have some serious inflation to deal with:
http://www.guardian.co.uk/commentisfree ... -argentina