Tuesday, January 09, 2007

The IRA Tax Dodge

Its getting to be the time of year (tax time) to get the money together for your IRA tax deduction. The IRA is kind of a forced tax deduction, whereas the mutual fund deduction is admitting that you don't have the time to follow your investments.

Let's maybe change your thinking with a few rules.

Rule 1, if you are under 45 years of age, start by taking personally control of your investments. There is no one out there that has your best interests at heart more than you do.

Rule two: if your goal is to get rich, stick with your IRA and mutual fund, you'll go broke trying to get rich.

Rule three: money is a tool and use it as such, it can work for you. Use it for college, training, rental real estate, not for the wide screen TV.

Rule Four: Everyone wants your money.

Rule five: Successfully managing your money will keep your family together. That might sound very obvious, but if you screw up your finances, you'll never get to the "family together" part.

Not to really be down and out about IRA and Mutual Fund managers, but you have to realize, that there is never going to be the call by them that says "Get out of the market, it's too risky." Even if they realized the risk and went to cash, their yield would drop. Then their customers would move to higher leveraged returns and leave them in the dust. As a fund manager, you have to play with the "petal pushed to the metal." Your salary is determined by return on equity, not common sense. This philosophy works exceedingly well around tax time, there is a lot of money coming to market for investment purposes.

If you freeze the investment market in time for one second and examine it, you will realize that someone already owns everything. At the next moment in time, that will also be true, but since money is coming into the market, more is being paid for less of the item.

At some point when stock prices start to decline, the logic for upward returns will vanish. At this point, your IRA or Mutual fund will be selling to cover redemptions.

Another thing to notice is the Insured Account Boilerplate. Your account is insured for umteen million dollars, but your investments are not insured against a loss. If the fund manager Skip's to Brazil you are insured. If he invests in his uncles new potato peeler and it goes broke, tough luck!

The other thing that I have noticed about my IRA, is that there is a 5% transfer fee. So if I decided to switch to another provider with funds not in the account for 5 years, I get charged. The reason this came up is because I noticed that my bank was offering FDIC insured retirement accounts that are insured up to $250,000 per individual. I am more interested in cash in the bank considering the present conditions.

My preferred vehicle of ownership is Treasury Bills which cost nothing to buy. Here is a link Treasury Direct But if you are stuck with and IRA or whatever, there is the option to secure it in a better way through a bank with FDIC insurance. Here is a link to the site FDIC Info. I don't normally plug banks, but Union Bank of California is one to consider. They cater to the over 50 "old farts," and I guess I have to fess up to being one of them. I'm sure that there are others and maybe someone will post a comment as to other banks offering the same investment opportunities.

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