October 18, 2011
The Dollar Vigilante
By Jeff Berwick
We are nearing the end of the grand experiment in nation-states, democracy and socialism. In case you hadn’t noticed, it failed miserably. Hundreds of millions were killed in wars engendered by nation states and made possible by fiat currencies and countless more were impoverished by the central banks instituted by the state. Riots and protests around the globe from Rome, to Egypt to nearly every major city in the US now attest to that.
Countries, however, are like living organisms and they will do almost anything to stay alive. They have always treated their tax-slaves (citizens) as milk cows and they will treat them as beef cows if worse comes to worse.
It is for this reason that it is more important than ever to both understand what is really going on – hint: whatever the government or what the newsreaders on your nightly news say is not what is really going on. It is also more important than ever to begin to protect yourself from your own government.
HAVING A SECOND PASSPORT GIVES YOU OPTIONS
Last year I got a call from an online brokerage I use in Luxembourg called Internaxx. After having had an account with them for a few years they called to let me know they’d be closing my account immediately.
I asked the obvious question: Why??
The lady replied that Internaxx had recently been bought out by a Canadian brokerage, TD Waterhouse, and since I was registered with Internaxx as a Canadian citizen (I was born in Canada and have a Canadian passport) that Canadian laws state that no Canadian stock brokerage can accept a Canadian client when it is operating outside of the country!
So, even though I thought I was safely away from the criminal Canadian Government’s rules and regulations in Luxembourg, all it took was for a Canadian company to buy that brokerage and all of a sudden I was persona non grata.
Luckily, and smartly, for me, I have another passport and so I said to the lady, “I am also a citizen of XXX country, could you unregister me as being Canadian and put me down as being from that country?”
She said yes. So, I didn’t have to go through the hassle of moving my account elsewhere. But, it just goes to show the benefit of having alternative citizenship – preferably in a country that does not have the resources nor the ability to police you around the world.
Sure, this time they were only looking to close my account. But, with all western governments drowning in debt, the next time it could be to impose an asset tax or even to seize my assets.
GOLDMONEY CLOSES DUTCH ACCOUNTS
Recently, a similar thing happened to Dutch citizens who held money or gold with Goldmoney.com in England or Switzerland.
Goldmoney.com sent a notice to all of its Dutch clients stating that their accounts would be immediately closed because the Netherlands financial regulator had deemed Goldmoney.com was “offering investment objects in the Netherlands without a licence.”
A licence, for those that don’t know, is a form of extortion done by criminal organizations such as governments or mafia to get you to pay for something you don’t need nor want.
Nonetheless, Goldmoney.com felt obligated to close all the accounts for Dutch citizens instead of facing the wrath of the Dutch Government.
Again, it was only to close accounts this time. But as things continue to collapse you will want to have options with other passports in order to evade the attempts by your own government of seizing your assets.
A SECOND PASSPORT IS MANDATORY FOR SAFETY
We consider holding at least one other passport as important as any other facet of your financial portfolio for the coming years. Leaving yourself at the whim and control of one government, especially if it is one of the heavily indebted western governments (which is almost all of them), is tantamount to playing russian roulette with your assets.
It is for this reason we recommend that people look to get at least one other foreign passport – and preferably from a government that is not intricately tied to the western financial system nor heavily indebted.
For this reason we have identified two countries which not only offer a passport without you having to live there but also offer it for very cheap by international standards. It takes about three years to get each but you will have residency nearly immediately after your first application which could help you organize your assets in the meantime.
The two countries we prefer and have covered heavily in The Dollar Vigilante for subscribers are the Dominican Republic and Paraguay. We have set-up a custom service to help get you a passport in either of those regions as quickly and easily as possible. You can find more info on the Dominican Republic passport service here and the Paraguay service here.
NO INCOME TAX AND OTHER BENEFITS OF FOREIGN RESIDENCY & CITIZENSHIP
Of course, having foreign residency and citizenship can have many other benefits as well.
For those who earn income over the internet or from outside of your home country attaining foreign residency could reduce your income tax dramatically, even to zero if you set it up properly. Paraguay, as example, has no income tax. And the Dominican Republic only charges income tax on income made in the Dominican Republic. Check with a tax advisor before making any decisions but residency in locales such as these can possibly save you a lot in taxes – all legally.
As well, should you wish to leave your country and reside somewhere for an extended period, having your residency or citizenship in a foreign country makes it all the easier. The Dominican Republic and Paraguay are both civilized, modern, beautiful places to live.
IT’S ALL HAPPENED BEFORE
Preparing now for what is obviously coming only makes sense.
It’s not like any of this is new. The US Government forced Americans to turn in their gold to the government in 1933. In Ireland they have begun charging an annual “asset tax” on all pensions. And, in Hungary, some pensions were already seized and forced to invest in government bonds. This is the likely tact of the US Government in the near future as they begin to run out of creditors other than the Federal Reserve. They will likely look first to nationalize 401k’s and IRA’s and force them into buying government “patriot bonds”… for the greater good, of course.
BETTER SAFE THAN SORRY
We think the phrase, “better safe than sorry”, is widely overused (see “Being Better Safe Than Sorry”) but in this particular instance we think it is wiser to take precautions than to leave everything up to chance.
If the western financial system implodes in an organized and structured manner then it may turn out that having a foreign passport wasn’t a necessity. However, if it implodes in a chaotic way – which is the way these systems always collapse – when the time comes that some countries institute capital controls and begin to seize their citizens assets you will be very thankful that you took a small amount of time and money to set yourself up with a second citizenship whereby you have a much better chance of protecting your assets from your own government.
September 23rd, 2011
By: Dan Caplinger
In your quest to save for retirement, tax-favored retirement accounts are valuable tools to help you set aside and grow your money. But eventually, all good things must come an end, and regardless of if you want to, you need to start taking money out of your traditional IRAs and 401(k) accounts. If you don’t, the IRS will gladly sock you with a penalty you simply can’t afford to pay. And with the recent volatility we’ve seen in the stock market, you need to make sure your retirement investments will produce enough income to give you the cash that the IRS makes you take out.
Dealing with the RMD
Millions of workers have enjoyed the benefits of retirement saving through IRAs and 401(k)s. When you set money aside in one of these tax-favored retirement accounts, you generally get to fund it with pre-tax money — meaning that you either get a deduction on your tax return (in the case of IRAs) or have that money excluded from your taxable income on your paystub (for 401(k) accounts). That’s a huge boost that often gives you thousands in tax savings year in and year out.
Even better, once your money is inside your retirement account, you get to defer paying taxes on the income it generates throughout your lifetime. The only time you’ll pay tax on a traditional IRA or 401(k) is when you take money out of your account. That’s why most people try to leave money inside their retirement accounts as long as they can.
When lawmakers created IRAs and employer retirement plans, they knew that taxpayers wouldn’t want to pay taxes any sooner than they had to. So they included provisions in the laws that govern retirement accounts to force people to take their money out under certain conditions, regardless of whether they actually needed the money. These required minimum distributions apply to two groups of people: accountholders who will be age 70 1/2 or older at the end of 2011, or those who inherited IRAs and weren’t eligible to do a spousal rollover into their own accounts.
What’s the deal?
Once you know that you have to take an RMD, the hard part is calculating it. Each year, you have to take out a fraction of your total traditional retirement account assets. That fraction is determined by your life expectancy and will change every year, but for those in their 70s, the required withdrawal is about 4% to 5% of your retirement portfolio. By the time you’re in your 90s, that figure can approach or exceed 10%.
And worst of all, if you don’t take your RMD, the IRS hits you with a 50% penalty on the amount you should have taken. So you simply have to find a way to come up with the cash.
Financing those distributions is where dividend stocks come in. If you want to take your RMDs without selling stock, then you need stocks that will pay you enough income to cover the RMD.
Fortunately, those who’ve just started having to take RMDs have plenty of good choices to get them into the 4% to 5% yield range. Utility stock Duke Energy (NYS: DUK) and telecom giant AT&T (NYS: T) are obvious choices with highly attractive yields. But at current yields, you have the luxury of building a truly diversified dividend-producing portfolio. For instance, recycling giant Waste Management (NYS: WM) offers not only a high current yield but also strong dividend growth, which can be even more important. Drugmaker Eli Lilly (NYS: LLY) and cigarette maven Philip Morris International (NYS: PM) also add some sector breadth while still providing the yield you need.
Once your RMDs get into the double-digit percentage realm, though, your choices get more limited. Rural telco Frontier Communications (NYS: FTR) and mortgage REIT Annaly Capital (NYS: NLY) make the grade as far as yield is concerned, but they may not fit well with the conservative investing styles that most older retirees prefer for their portfolios. Nevertheless, they remain an option for those who are dead-set against selling stocks and invading their principal.
If you have to take an RMD, you have until the end of the year to do it. But with the end of the year often getting hectic, think about doing it now rather than procrastinating. With half your distribution on the line, you can’t afford to mess this up.
September 21st, 2011
By: Sheryl Nance-Nash
It’s bad enough the stock market has been beating up on most of our 401(k)s lately. Now, legislators and big thinkers are debating a variety of proposals to reduce the tax benefits of saving in 401(k)-type plans.
One idea being floated would take away the immediate tax deduction you get for your contributions. So if you make $50,000 a year and contribute $5,000 to your 401(k), you’d no longer have the pleasure of seeing your taxable income drop to $45,000.
Right now, Americans are typically taxed once on dedicated retirement accounts: Either you contribute pretax income and don’t pay taxes until you take the cash out — as with your 401(k), for example — or you pay in with your post-tax income, but the money that you withdraw at retirement is tax free — as with a Roth IRA. Under this new scenario, those 401(k) investments could be taxed both before and after taxes, just like your regular investments.
But some things may be sacred. There’s not a high probability that you’ll have to pay taxes on your profits any sooner than you do right now. Say you have $100,000 in your 401(k) and you make $5,000 in capital gains on it. As it stands now, you wouldn’t get taxed on that $5,000 until you withdraw it, and there’s not much chatter that anybody is looking to change that.
So who has the most to lose from the proposals being debated? Low-income workers, says the nonpartisan, nonprofit Employee Benefit Research Institute, because they’re the ones most likely to respond to a loss of the tax break by either cutting their contributions or stopping them altogether.
A Major Disincentive to Save for Retirement
At a recent hearing of the Senate Finance Committee, EBRI Research Director Jack VanDerhei, explained the potential impact.
“As expected, the highest-income workers generally would be the most affected if federal tax limits in 401(k) type plans were lowered,” VanDerhei said in a prepared statement. “But the surprising result we found is that the lowest-income workers would also be very negatively affected, and many report that they would reduce contributions or stop saving in their work-based retirement plan entirely, if the current exclusion of worker contributions for retirement savings plans were ended.”
For instance, VanDerhei said that if workers lost their deduction in 2012 and saw it replaced with flat-rate tax credits — as was recently proposed by Brookings Institution Fellow William Gale — the average reductions in 401(k) accounts at normal retirement age would range from a low of 11.2% for employees now ages 26-35 in the highest-income groups, to a high of 24.2% for employees in that age range in the lowest-income group.
At the hearing, Gale explained his proposal to “reform public policies toward retirement saving by replacing the current deduction for contributions to retirement saving accounts with a flat-rate refundable credit that would be deposited directly into the saver’s account. The proposal would (a) address long-standing concerns in the retirement saving system by improving incentives for most households to participate and by raising national saving, (b) offset pressures created by the current weak economy for households to reduce their retirement saving, (c) help solve the long- term fiscal problem facing the country by raising $450 billion over the next decade in a manner that is consistent with the principles of broad-based tax reform and distributes the fiscal burden in a progressive manner.”
Earlier EBRI analysis of the bipartisan deficit commission’s other proposal to reduce the 401(k) savings caps to either $20,000 a year or 20% of income (the so-called “20/20 cap”) starting in 2012, would most affect the highest-income workers — not surprising, since those who earn more tend to save more using these kinds of retirement plans. However, EBRI also found the cap would cause a big reduction in retirement savings by the lowest-income workers as well. Today, the annual cap is $16,500, with an extra $5,000 allowed for those who are 50 and older.
Would Employers Drop 401(k) Plans?
All the proposed monkeying around with retirement savings plans could be one more nail in the retirement coffin. After all, the number often bandied about for how much money the average American will have at retirement is around $50,000 — hardly enough to live the glamorous life in one’s golden years.
VanDerhei told DailyFinance he’s worried the Brookings proposal might find some support in Congress. “It promises to save the government $450 billion over 10 years, which could look attractive to the [Supercommittee that] is tasked with coming up with a lot of savings between now and Nov. 23.”
Gale is leading the charge to make employers’ contributions taxable and for employees to lose their 401(k) deduction. Instead, he suggests a flat-rate refundable credit of either 18% or 30% that would serve as a matching contribution to a retirement savings account. VanDerhei says this would surely diminish some employers’ willingness to offer 401(k) plans, as well as employees’ desire to participate in them.
Said VanDerhei, in a prepared statement, “Given that the financial fate of future generations of retirees appears to be so strongly tied to whether they are eligible to participate in employer-sponsored retirement plans, the logic of modifying (either completely or marginally) the incentive structure of workers and/or employers to save in a defined contribution plan needs to be thoroughly examined.”
VanDerhei says it’s not a stretch to think that too much tinkering could lead to some companies shutting 401(k) plans down. The consequences would be huge. “When people don’t have 401(k)s, they often don’t save elsewhere for retirement. Anything that will cause a drastic reduction in retirement savings at a time when there are various proposals to decrease Social Security benefits, makes it hard to see how people will have any standard of dignity in retirement.”