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Many of our
customers have been converting IRAs into self-directed equivalents, or wholly
cashing out 401ks and absorbing a preemptive 20% loss. The motive is
protection from uncontrollable forces like market tumbles or governmental
regulation akin to the Argentinian pension takeover in 2001. Since we are on
a Robert Prechter kick this week, here is an interesting excerpt from his
recently re-released book, Conquer
the Crash.
Make
sure you fully understand all aspects of your government’s individual
retirement plans. In the U.S., this includes such structures as IRAs, 401Ks
and Keoghs. If you anticipate severe system-wide financial and political
stresses, you may decide to liquidate any such plans and pay whatever penalty
is required. Why?
Because
there are strings attached to the perk of having your money sheltered from taxes.
You may do only what the government allows you to do with the money. It
restricts certain investments and can change the list at any time. It charges
a penalty for early withdrawal and can change the amount of the penalty at
any time.
What
is the worst that could happen? In Argentina, the government continued to
spend more than it took in until it went broke trying to pay the interest on
its debt. In December 2001, it seized $2.3 billion dollars worth of deposits
in private pension funds to pay its bills.
In the
1930s, the world heard a lot of populist rhetoric about why
“rich” people should be plundered for the public good. It is easy
to imagine such talk in the next crisis, directed at requiring wealthy people
to forfeit their retirement savings for the good of the nation.
With
the retirement setup in the U.S., the government need not be as direct as
Argentina’s. It need merely assert, after a stock market fall decimates
many people’s savings, that stocks are too risky to hold for retirement
purposes. Under the guise of protecting you, it could ban stocks and perhaps
other investments in tax-exempt pension plans and restrict assets to one
category: “safe” long-term U.S. Treasury bonds.
Then
it could raise the penalty of early withdrawal to 100 percent. Bingo. The
government will have seized the entire $2 trillion -- or what’s left of
it given a crash -- that today is held in government-sponsored, tax-deferred
401K private pension plans. I’m not saying it will happen, but it
could, and wouldn’t you rather have your money safely under your own
discretion?
Tarek Saab
Guardian
Commodities
Tarek
Saab is the President of Guardian Commodities and a
former finalist on NBC's "The Apprentice" with Donald Trump. He is
an international speaker and syndicated author.
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