IRS rules equal retirement confusion
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IRS Publication 590 offers befuddled taxpayers more than 100 pages of "guidance" -- much of it in language a normal person would never use -- on how to comply with the rules and regulations governing Individual Retirement Arrangements.
That's right, "arrangements." The federal government's propensity for bureaucratic language spurred the retirement industry to come up with a more marketable name for the popular retirement accounts.
Government gobbledygook aside, IRAs are only one type of retirement account. There are separate, but equally inscrutable, rules for 401(k)s and 403(b) plans, not to mention familiarizing oneself with the regulatory landscape when it comes to conventional retirement accounts, where contributions are tax deductible, vs. Roth accounts, where they are not.
Simplicity is no longer a virtue, laments Mt. Lebanon financial planner Robert Nusbaum.
"Trying to explain the choices for retirement investing to young couples is staggering," he said. "It's hard for me to keep up with it, never mind the everyday person."
Mr. Nusbaum and his wife, Kathryn, a financial planner and certified public accountant, operate Middle America Planning. The firm advises "middle Americans," people who aren't wealthy enough to afford accountants and lawyers who will deal with the mind-boggling, constantly scrambled maze of regulations, Mr. Nusbaum says.
"It's the everyday people in the middle who are stuck with the complexity," Mr. Nusbaum said.
The Nusbaums attribute much of the perplexity to the federal tax code.
Take retirement accounts. Each type has its own set of rules governing contribution limits, withdrawals and tax implications. Once that matter is settled, there's the issue of whether to save in a Roth or conventional account. The amount of time and money being spent on that question disturbs Mr. Nusbaum, particularly since the answer must be based on factors that can't be known at the time the decision is made, including what tax rates will be in the future and which bracket the IRA investor will be in when they decide to withdraw money.
"The decision is wildly complicated, and even 'experts' come down on both sides of the issue," he said. "Billions of dollars and untold hours and analysis have gone into what can easily be compared to rearranging the furniture."
Once baffled investors settle on the type of account, they are faced with a bewildering array of investment options. Even eliminating a lot of legitimate investment choices and considering just mutual funds does not make things much simpler: Morningstar's Principia database contains information on more than 27,000 mutual funds, Mr. Nusbaum notes.
First Published November 21, 2010 12:00 am
