Here are two enormous numbers:
- U.S. National Debt: $22 trillion
- U.S. Private Retirement Assets: $26 trillion
The federal government has a gigantic long-term liability, and Americans have a gigantic long-term asset. They’re definitely not part of the same balance sheet, but we’re not sure the federal government sees it that way.
One of our long-held suspicions has been that the federal government views your retirement savings as the solution to its debt problem, and so we’re extremely sensitive to any attempt to direct retirement savings into government debt, or to gradually erode tax-advantaged retirement benefits.
You would think, with the looming insolvency of its Social Security and Medicare programs, the federal government would ENCOURAGE private savings, understanding that it cannot possibly meet the commitments it has made.
Well, that’s what the federal government would do if it cared about you, but it DOESN’T—it cares about itself. As we have long maintained, the federal government is itself an interest group with its own best interests at heart—not yours. It sells itself as the solution to your problems, but it views YOU as the solution to ITS problems.
That’s why, when the Obama administration rolled out its stupid “myRA” retirement accounts, contributions were required to go into U.S. treasuries, rather than into private securities. The Obama administration thought it could trick Americans into funding the federal government’s debt problem with their retirement savings.
And it’s why governments at both the state and local level keep trying to preference public debt over private debt—they want to force the private economy to do a better job of servicing their public debt.
Which brings us to the SECURE Act, which passed the House 417-3, and is expected to sail through the Senate. Featuring several beneficial retirement provisions, the SECURE Act unfortunately contains a harmful financing mechanism that will prevent IRAs from being passed on to the next generation.
IRAs can be an incredible wealth-creating device because, under current law, they can be passed on to children and grandchildren. Generously funded and carefully stewarded, your IRA could fund your child’s retirement under current law with the “stretch IRA” provision.
The SECURE Act would end this, forcing beneficiaries to empty all inherited IRAs within 10 years. It’s designed to be a revenue generator for the federal government, because these accelerated distributions would likely be taxed under higher, working-age tax rates (CBO estimate). And of course it will discourage generational wealth-building.
So far, only Sen. Ted Cruz is holding out on passage in the Senate, but he’s holding out because of a different provision—a provision related to home-schooling. But the bigger offense is the federal government wanting to fund its debt at the expense of your children.
The SECURE Act will prevent you from using your IRA to bless your children and grandchildren. It would be an ominous precedent.