The University Record, April 12, 1999


Is an IRA a good idea?

During the latter years of my working life, I built up an IRA worth several thousand dollars. My idea was to provide for financial "emergencies" during my retirement. This is what happened to me:

I am now retired with an income from the S.S.A. (Social Security Administration) of a little over $13,000 a year. TIAA & CREF are providing another $22,000. My 12.5 years with Ford Motor Co. are now bringing in another whopping $610 per year. (Hurray for TIAA-CREF.) In the fall of A98, I bought a used van and withdrew $4,000 from my IRA to help pay for it. My idea was to reduce my 11.5 percent interest expenses.

And then came tax time. As I expected, I was liable for federal income tax on the $4,000, but at the maximum rate of 28 percent since this was "excess income" for me. That part I could handle, but the next part blew my mind. I was also liable for an additional UtaxL because I had exceeded my S.S.A. income limit. This means that I realized a net of only 60 percent of the $4,000.

I have come to the conclusion that an IRA is a stupid way to prepare for retirement. I found this so absurd, so unbelievable, so just plain weird that I could not accept the idea without a fight, so I consulted with our payroll people, three independent tax attorneys and the IRS itself before I finally gave in and accepted my fate. I finally had to come back to the words of wisdom of my original tax attorney, which were: "Sorry, buddy, but that is the law; the decision of your Congress. You would have been much better off to borrow the $4,000 and pay the interest. And as for the remainder of your IRA, I can see no way you will ever get your money without a similar screwing."

Check it out. If I am wrong, please let me know. If I turn out to be right, perhaps you would like to re-think this IRA business in a whole new light. One expert even had this to say: UThe big advantage of an IRA is that you do not have to pay income tax on the money you put in at the time you put it in.L Now there is a consoling thought if I ever heard one.

David R. West