 Roll Over and Die Laughing 01.30.06 Roll Over and Die Laughing IBM's momentous decision this month to wind down its traditional pension plan in favor of 401(k)s will no doubt accelerate the movement toward self-directed retirement savings. The company's stated reason for the move was to make pension costs more predictable. But I think it had another, ulterior motive. To understand my theory, turn to the gatefold on page 91 and read Janet Novack's advice on the latest wrinkle that Congress has added to retirement planning, a device called the Roth 401(k). Now, you probably thought there were only two kinds of individual pension accounts, IRAs and 401(k)s, but in fact there are far more. It behooves you to understand all these subtleties, because if you don't you will get penalized by the IRS and spend your retirement years bagging groceries at a supermarket in Florida. There are at least 11 kinds of retirement accounts, with different rules for who's eligible, when you get phased out, when you can, can't or must roll something over, when you get docked for taking out too little and when you get smacked for taking out too much. Here goes: deductible IRA, nondeductible IRA, spousal IRA, inherited IRA, Sep-IRA, Roth IRA, 401(k), aftertax 401(k), Roth 401(k), Simple IRA and Simple 401(k). "Simple"? Those folks on Capitol Hill have a terrific sense of humor. There are six different income cutoffs at which you are phased out of the right to contribute or to roll over. There are five different tax regimes for withdrawals: tax free, only the principal tax free, taxable at regular rates, taxable at regular rates plus 10% and taxable at regular rates plus 25%. Novack is still chuckling over a tax case decided in November. Seems that an accountant at Deloitte & Touche took out retirement money for tuition to get a Ph.D. He was supposed to roll over before withdrawing. He didn't. The IRS nailed him for a 10% penalty. Gotcha! Confused? Go to Wolters Kluwer's CCH for the handy four-volume, 6,480-page handbook to federal rules on pensions ($204). Read it before you invest. Now here's my theory on IBM. It is driving one more nail in the coffin of the traditional corporate pension. Pretty soon everybody will have self-directed accounts, perhaps 11 different kinds of them. Then Congress will add 11 more. To fill out our tax returns we will all need supercomputers, sold by you know who. | ||
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