The Sharks Are Circling

There are sharks in the water--and it's not blood that they are after--it's your money.

As part of his plan to "simplify the tax code", President Obama wants to revoke the tax-exempt status of 529 investment accounts.  For those not familiar, 529's are "Educational IRA's"--usually run by states--that allow parents to save money for their children's college education.  Under current law, if that money is used for school expenses, the parents don't pay taxes on the distributions.  If parents start when a child is born and save religiously, they are rewarded with not having their kid saddled with student loan debt upon graduation.

But the Obama Administration--and economists on the Left--think the "wrong people" are taking advantage of 529 plans.  They believe that most of the seven million accounts are held by parents who "could afford to save for college anyway"--and that the 529 is just a tax-shelter.  They may be right--the average 529 investor probably doesn't have a $400 smartphone sitting next to a $400 tablet with the same purchased apps on both of them, or subscriptions to ten different streaming video services, or the largest broadband internet package for freeze-free gaming, or unlimited data plans, or two $6 Mocha Grande Lattes every day and can "afford" to save for their kids' college.  What those "experts" fail to realize, however, is that by making 529 distributions "regular income" they also will cost middle class families money in financial aid for which they will no longer quality because they "make too much".

The fight over 529's is just a prelude to the real target of what will be President Obama's liberal successors in Washington--Roth IRA's.  There is $217 billion dollars currently held in 529 accounts.  But there is over $1-TRILLION sitting in Roth IRA's--all of it growing tax-free--and waiting to be distributed tax-free.  The President--again to "simplify the tax code"--is proposing a cap on the value of Roth's at $3.4 million dollars.  (That is apparently all the Government believes you should be allowed to save for retirement--so don't invest TOO well young savers).  Meanwhile, the calls are already coming from those at the Liberal think tanks to revoke the tax-free status of Roth's and tax the distributions not at the lower capital gains level--but again as regular income to "maximize Government revenues".  The argument being--again--that those who have been saving in Roth IRA's could have been putting that money away in other ways and don't "deserve" the tax break.

But there is still another pool of money that dwarfs even the Roth IRA sum--and that is the $12-TRILLION in wealth that Baby Boomers will be handing down to their Generation X and Gen Y children over the next couple of decades.  Economists are calling the "greatest transfer of wealth in human history"--and that isn't sitting well with those on the Left.  Remember, they want to "redistribute wealth"--not transfer it.  And that is why calls for increasing the inheritance tax and reducing the amount that is exempt from inheritance tax are already building.  And it's why Liberal pundits are sharpening their vocabulary with terms like "Genetic Lottery Winners" to describe those poised to get something from their dead parents.

So the sharks are out there--and they are getting hungrier by the day.  You might want to get a bigger boat.