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Gary North Pulverizes IRA-based Retirement Investing

Austrian school economic commentator Gary North has written an outstanding take-down of some of the political and financial risks inherent in government-approved IRA retirement savings vehicles. It’s creatively written from the point of view of a CPA counseling his client on why he should use an IRA for tax-reduction retirement planning. But, it’s written sarcastically and shows the naivety of this advice, so it could be a little confusing to read as you have to realize the opposite of what the fictional CPA is saying is what Gary North believes.

I list the major points against investing via an IRA for tax-reduction purposes made by Gary North below:

  1. Free money from Congress
    1. Congress is not looking for ways to save US citizens from their tax burden; historically, they have worked to expand it
    2. There is no incentive for Congress to not change the rules and force you to pay taxes to withdraw your money from your IRA, eventually
    3. The record of Congress is one of repeated duplicitousness, lies and rules-changes, none of which have ever benefitted the average investor
  2. Emotionally locked in
    1. Most people are emotionally locked in to non-Roth IRA plans because they fear paying taxes now and would prefer to push that inevitability into the future
    2. It is unlikely their tax terms will improve with time; Congress raises taxes and fees over time
    3. People have emotionally committed themselves to higher future tax burdens to avoid confronting the reality of their tax burden right now
  3. Price inflation
    1. Investors must contend with constant price inflation caused by the Federal Reserve
    2. Even at 2% inflation per annum, prices double every 35 years
    3. If you begin investing at 30, prices will have doubled by the time you retire at 65; your IRA will have lost half its value
    4. Traditional IRA investment choices, such as major stock market index funds, have yielded negative net returns for the last 12 years
    5. It’s unlikely the average investor can shield himself from inflation within the investment choices available in an IRA
  4. Privacy
    1. Information on IRA holdings must be sent to the IRS every year
    2. Congress and the IRS know exactly what you hold in your IRA
    3. You have no privacy and no secrecy of your investments via an IRA
    4. Congress and the government do not set a good precedent in this regard, as they insist on transparency from investors but lie, cheat and distort the truth on their own behalf
  5. A freeze on IRA accounts
    1. The odds of another crisis, financial or otherwise, are relatively high
    2. The government could use this as a pretext for issuing an executive order to lay claim to IRA assets, or otherwise freeze individuals’ ability to manage them
  6. Gold in an IRA
    1. It is difficult and costly to buy gold in an IRA
    2. Placing gold in an IRA negates part of the benefit of owning gold (privacy)
    3. Typical IRA offerings are managed by graduates and defenders of the current financial and political system, who have proven themselves incompetent on numerous occasions (2007-2009 being the most recent) and who are ignorant of economics and have a vested interest in propping up the current system

I don’t get how anyone could doubt the Austrian school.

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