Tuesday, January 01, 2013

Max IRA Contribution Upped To $5500 For 2013, No Confiscation In Sight

Investors need to check out the IRS rules for tax-advantaged retirement accounts in 2013.  One notable item is the increased cap for IRA contributions, now $5500.  I made the maximum contribution to my IRA this morning for tax year 2013.

I've been seeing a lot of chatter on the Web lately about national plans to confiscate personal retirement accounts or force their holders to purchase government bonds.  I have not uncovered any official record of any such plan under consideration at any level of government.  One prominent economist has made a series of public proposals advocating a mandatory annuity-based account system but the political blogosphere has somehow magnified her ideas into a looming threat of confiscation.  Calm down, people.  Confiscation of IRAs and 401(k)s would be far more disruptive to the U.S. financial sector than FDR's gold confiscation.  Mutual fund companies and big banks would cry uncle at the lost fee income and their lobbyists would be out in force.  I doubt that any compromise proposal to custody mandatory annuity accounts with the few politically favored big banks would satisfy any Wall Street concerns over lost fee revenue.  Any way I slice this one, I just don't think confiscation is any more than a very remote "black swan."

Congress has also considered methods of encouraging contributions to IRAs.  Recent hearings considered new incentives that would make retirement account contributions easier.  The Administration is even proposing tax credits that will encourage small employers to enroll employees in IRAs.

People can relax for now.  A replay of the 2008 financial crisis may put a lot of untouchable ideas back on the table but taking away IRAs isn't likely to be one of them.  I suspect that removing their tax exemption or tax deferral would be within the realm of extreme possibility, but even that would occur before outright confiscation (or forced conversion to bond-buying managed annuities) would ever be considered.  I made my IRA contribution this year with the risk of eventual taxation in mind, and I would prefer to earn tax-free capital gains while they're available.