Converting 401k and IRA Funds Into "Steady Payment Streams"

George Washington's picture

Last May, I wrote about the rumor that the Obama administration might seize funds from American's 401k and IRA accounts.

Last week, Bloomberg pointed out:

Obama administration is weighing how the government can encourage
workers to turn their savings into guaranteed income streams following
a collapse in retiree accounts when the stock market plunged.


U.S. Treasury and Labor Departments will ask for public comment as soon
as next week on ways to promote the conversion of 401(k) savings and
Individual Retirement Accounts into annuities or other steady payment
streams, according to Assistant Labor Secretary Phyllis C. Borzi and
Deputy Assistant Treasury Secretary Mark Iwry, who are spearheading the


There is “a tremendous amount of interest in the White
House” in retirement-security initiatives, Borzi, who heads the Labor
Department’s Employee Benefits Security Administration, said in an


In addition to annuities, the inquiry will cover other
approaches to guaranteeing income, including longevity insurance that
would provide an income stream for retirees living beyond a certain
age, she said.


“There’s been a fair amount of discussion in the
literature taking the view that perhaps there ought to be more lifetime
income,” Iwry, a senior adviser to Treasury Secretary Timothy Geithner,
said in an interview...


One proposal raised by Iwry as co-author
of a paper while at the Retirement Security Project, before joining the
administration, has reached Congress. A bill requiring employers to
report 401(k) savings both as an account balance and as a stream of
income based on an annuity was introduced on Dec. 3 by Senators Jeff
Bingaman, a New Mexico Democrat, Johnny Isakson, a Georgia Republican,
and Herb Kohl, a Wisconsin Democrat.

Sounds innocuous, right?


But Karl Denninger and Jesse smell a rat.

Denninger writes:

In a short conversation this noontime ... Rick Santelli was talking about a potential to effectively force money into the Treasury market.


Where would they get this?


From your 401k and IRA accounts!...


Let me tell you what this is - it is an attempt to prevent the collapse of the Treasury market!


Forcing people into Treasuries as an "annuity" is exactly what Social Security allegedly is. Except that Treasury stole the money that was collected in FICA taxes and spent it!


what? They'll do that here too - you're going to "invest" in Treasuries
which of course are effectively a CALL option on the future taxing
ability of the government.


The problem is that with an aging population and the immigrant problem (illegal immigrants that is), along with offshoring, the aggregate wage base will drop and thus this is the most dangerous investment of all!

even worse is that the government has intentionally suppressed Treasury
yields during this crisis (and will keep doing so by various means,
including manipulating the CPI - the "inflation index" - as they have
for the last 30 years) so as to guarantee that you lose over time compared to actual purchasing power...


have a funny way of turning into mandates, and this looks to me like a
raw admission that Treasury knows it will not be able to sell its debt
in the open market - so they will effectively tax you by forcing your
"retirement" money to buy them!

This may be the
only way for Treasury to hold down interest rates to something
reasonable in the intermediate term, but doing so will instantaneously
remove a major source of funding for the stock market - that is, the
monthly and quarterly inflows from retirement accounts.


You can bet this won't be good for you, the ordinary American.


can also bet that once such an "option" is made available there is a
very high probability of the government doing things that either
promote or simply don't stand in the way of another stock market crash
as a means of "herding" your money into Treasuries - so they can blow
it - all under the guise of being allegedly "safe".


Of course this begs the question - what
if the government can't pay down the road when you retire, just as they
can't pay on a forward basis with Social Security and Medicare?


This "proposal" can only mean one thing - Treasury smells smoke. Maybe you should pay attention to what they're huffing!

And before you say "oh they'd never do that" I want you to read this:

is a warning to us all. The Argentine state is taking control of the
country’s privately-managed pension funds in a drastic move to raise



My fear is that governments in the US, Britain, and Europe will display similar reflexes. Indeed, they have already done so.
The forced-feeding of banks with fresh capital – whether they want it
or not – and the seizure of the Fannie/Freddie mortgage giants before
they were in fact in trouble (in order to prevent a Chinese buying
strike of US bonds and prevent a spike in US mortgage rates), shows
that private property can be co-opted – or eliminated – with little due
process if that is required to serve the collective welfare.

Jesse has a similar take:

a rule of thumb, the worst possible time to convert lump sum savings
into a fixed income annuity would be when interest rates are
historically low.

Although products may vary, this is roughly
equivalent to buying long term bonds at a time when interest rates are
likely to increase, substantially reducing your principal in real
terms, and eroding your fixed returns through inflation.

some reason the Obama Administration is promoting the idea now that
there should be some encouragement for Americans to start converting
their 401K's and IRA's into annuities, to provide themselves with
lifetime income.

The effort is being spear-headed by Mark Iwry of the Treasury and Phyllis Borzi of the Department of Labor. Here is a paper written on the subject by Mark Iwry when he was at the Brookings Institution.

essence of this paper is that distributions from IRA's and 401K's would
automatically be rolled into an annuity providing a monthly income by

This concept is known on the Street as the handling
fees for meager returns pork barrel pigfest. The Fed likes it because
they will undoubtedly get a two year rolling chunk of the people's
retirement cash to play with.

Perhaps just rolling those 401K's
and IRA's into Social Security or the Long Bond would be what they have
in mind. Somehow the panacea of TIPS with inflation defined by the
government sounds probable. The drawback perhaps is that this would not
generate the highest recurring fees for Wall Street and the FIRE
sector, which have to be eyeing that 'cash on the sidelines' hungrily.

How about Patriot Bonds
that are fully invested in Mortgage Debt formerly owned by the Fed,
with some tranches of Commercial Real Estate to add some zest to the
recipe? The Treasury can give this option a small tax break, which can
be largely consumed by Wall Street fees and mispricing of risk returns

My model for thinking about this annuitization is that the
government wishes to appropriate your savings for a 2.0% return, ex
fees and mispriced risk and inflation, as a source of funding for the
bailouts of an oversized and insolvent FIRE sector (like AIG) and the
imploding pretensions of a global financial elite...

Administration Explores R Bond For Retirement Accounts - Investment News 7 June 2009

have a separate "R Bond" instead of those government bonds they have
now called 'Treasuries?' And why have a mandatory universal retirement
system when you have this thing called 'Social Security?' Think about
it. Sounds like the kind of preparations governments make for things
like 'new dollars' after a selective default.

Are Denninger and Jesse right?

I don't know ... we'll have to wait and see.

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ClairD's picture

Hi there, I decided to empty my IRA so I would have some peace of mind in this highly unstable economy that the gov't will not have a chance to put their paws on my hard-earned money. Raiding retirement accounts has been a common source of emergency cash for many individuals during the past few years. Retirement account are supposed to guarrantee us of the financial support after retirement, but the desperate government and economy of our times are precisely the main reason why people are willing to incur the penalties that come with taking money out of an IRA early (I'm talking about the 10% penalty + regular withdrawal tax that applies). For those who are planning to take the money out and aren't sure of what to do, I'd advice you to get professional / knowledgeable person's help as there also are penalties for making a mistake.

On the otherhand, handling the money yourself requires a good financial managament skills and responsible decision-making so you don't put yourself in a crisis. You can read some article here: More people raiding retirement accounts when short of cash. Think hard and decide wisely on where you'll spend your hard-earned money.

Anonymous's picture

Does The National Debt Threaten the US Private Retirement System?

Future Washington revenue needs and the growing treasury debt load may ultimately require government mandates directing retirement plans to purchase government bonds. In addition, Washington will likely force trillions of private plan benefits into new proposed “universal” government Guaranteed Retirement Annuities managed by the Social Security System.

This threat of stealth nationalization and confiscation and how it could happen is outlined in the 20 page special report, “Are You Ready for the Coming Obama Retirement Trap?”
Here is a URL link allowing you to read part of the special report.

the grateful unemployed's picture

The plan would be to bailout the 401K plans, and back the equities with with treasuries. The timing of the plan is the question. The natural impulse for investors is to sell at the bottom of the market will impoverish them further in the long run, which the government does not want. They want your vote.

Equities held through a mutual fund, or an equivalent (ETF's?), are prime victims of the sell at the bottom mentality, and for those holding paper on gold in the GLD, good f**king luck. In a deflationary crash people sell paper to raise cash. (For a while now I notice the market goes up on the first of the month, and similarly that's when food stamp benefits (SNAP) are credited to debit card accounts. Now you know that there are maximum asset thresholds which prevent you from applying, unless your assets are in a 401K. To apply for food stamps, you first have to move your money into a 401K, or other retirement account. With so many people living out of their 401K, the government of CA for one is actively soliciting new SNAP applications, - to stop the bleeding - and because the number of people the state has on SNAP adds to the federal funds they receive. ERGO what we are seeing in the market is what I call the FOOD STAMP EFFECT, money NOT being removed from 401K plans, which is allowed to be invested putting a bid under the market.

The Fed has the power to QE anything, houses, cars or dogs. They can and will QE 401K plans,ideally if you don't need your 401K you could ride it out, and so those of you who read it this way have already done something, and of course you will contribute taxes to the IRS, which makes it a lose lose situation. If you're still in your 401K by all means apply for SNAP. But to turn what Reagan once said on its head, "If you can make your own bread, stay off our rolls..."

If you can't make enough money to get by, get on the SNAP program by all means, its the patriotic thing to do.

dark pools of soros's picture

and SNAP is just another driving factor raising the price of food staples like bread, etc...  if you could buy liquor with it good scotch would all be over $200 a bottle

Anonymous's picture

If all the stocks in 401 K and IRA were sold to buy treasuries wouldn't that tank the stock market?

Little Chicken Johnson

Anonymous's picture

Excuse me if this is a dumb question - Wouldn't a forced rollover of IRA and 401k into treasuries tank stocks as they were sold from all the accounts?

Little Chicken Johnson

Anonymous's picture

If this happens, I'll cash out, take the penalty hit (it will be less than the devaluation over time), build a couple of good safes in a few locations and fun my retirement in gold / silver (already allocated 10% in the stuff).

trav7777's picture

lol...Douchinger again cribbing.  I was the only one on TF who argued that the USG would come after retirement cash; they called me a lunatic.

The government is like someone drowning who cannot swim, they will grab anything and everything they can in an attempt to stay afloat.  You cannot get near them or else they will pull you under trying to keep their own lungs breathing air.

resaci's picture

You have 60 days to replace a distribution with no tax effect. If a traditional IRA is converted to a ROTH this year, you can push the income ahead, 50% in 2011 and the other 50% in 2012. Not sure what happens with the 10% penalty. Anyone know what happens with the 10% penalty?

A_MacLaren's picture

When you convert a regular IRA to a Roth IRA, there is no penalty, only taxes that are due.

If you try to access that money (the principal) within 5 years, then there are penatlies, unless you are of retirement age 59.5 year.

This is coming off the top of my head,so check here:


Anonymous's picture

Quit whining. You gave your money to the goobermint for safe-keeping, you deserve to get screwed. Toss that syringe away and take charge of your own affairs, for once. Sheesh...

Anonymous's picture

Just took a 100% distribution from my IRA last week! I figure the 10% penalty is less than taxes will ultimately be raised. Unfortunately, I have enough tax-loss-carryforwards to shield me on taxes for the next 1500% in capital gains. But it feels so good to be free!

Anonymous's picture

Over 59.5, so no penalty. Called Vanguard last Friday and told them to send me a check for the $422K in my IRA.

They couldn't believe I wanted to do that. They offered to let me speak to an investment adviser or asked me to speak to my CPA first.

How funny, I am a CPA and gave up my Series 7 license last year when I announced my retirement.

Where is Chumba....... GOLD BITCHES!!!

dhengineer's picture

My wife and I decided to cash out our IRA's, pay the taxes, and buy a little house in upstate NY for cash.  We don't have a lot, but the house was cheap, and the tax break for house purchases just about covers the 10 percent penalty for cashing out.  Plus, our primary residence will now be outside New York City so we can avoid the NYC local tax.  We can grow quite a bit of food, and we'll have a little hide-away in case the Sheeple wake up and decide to take matters into their own hands.

DoChenRollingBearing's picture

Well done dh, bravo.  I bit the bullet and got out of mine as well.  Sleep better.

Part of MY money went into gold.

Anonymous's picture

According to online information, 401K (and maybe IRA's) can be used to fund education and pay for medical insurance. Depending on your financial circumstances, the tax / penalty could be minimized if not altogether eliminated. Perhaps a much better utilization of your money (at least you get to make the decision).

I am for seeing ZH do an article on what you can do with your 401K or IRA, especially while so many are struggling to get by.

Using a slide rule to handle these math questions prior to posting.

Anonymous's picture

I would love to see an article like that on 401ks.

Neo-zero's picture

I too would love to see that article!  I've already made an appointment with my accountant to look into the tax ramifications because I'm not liking the looks of things to come.


dark pools of soros's picture

you can take a loan out for up to 50% of it...  great way to 'take chips off the table'


also you can nag whoever runs your plan to add other funds you like better

Cindy_Dies_In_The_End's picture

I think GG would recomment taking it out, taking the penalty and going gold.


Mathematically, if they do nothing else, they pretty much have no choice but to take 401Ks and IRAs. It still won't stop the bleeding for long.

Cognitive Dissonance's picture

The classic Hegelian Dialectic "problem, reaction, solution" meme unfolding before our eyes. Of course, who caused the problem in the first place? Is there really a problem at all (many investment accounts are within 30% of their previous high) who says there needs to be a government solution etc?

The reason we repeat our mistakes is not that we don't learn from history. Some entities are clearly learning from the past and understand that the oldest tricks are the best tricks. The reason "we the people" don't learn from our mistakes is because we don't know ourselves. You can't learn what you're unwilling to study and understand.

As long as we continue to live the inauthentic life, shielding ourselves from ourselves, not demanding of ourselves truth and honesty, insisting that others in this world educate, entertain and nourish us, we are ripe for the picking. And there are plenty of evil entities more than ready to pluck us. We are our own worst enemies. Of course, this is not what we want to hear, so we shield ourselves from this most basic of truths as well.

Jean Valjean's picture

But the people refused to listen to Samuel. No! they said. We want a king over us.  Then we shall be like all the other nations, with a king to lead us and to go out before us and fight our battles.

dark pools of soros's picture

..and a King to sell us burgers and fries

pros's picture

This is a multi-stage process:

1. separate equity holdings of working people from the wealthy by placing the working peoples' money in the 401K/pension pot

2. Force the working people to convert to treasury holdings

3. devalue the treasury security and inflate equity security value

QED, more wealth transfer and painless treasury debt reduction

Schlep's picture

This is the, the end my friend.

Jim Morrison.

This is the plan from way back. Did you honestly believe the FEDS would leave that "additional retirement fund", alone when it was put into law a generation ago. I the working poor believe this is a done deal we just have'nt been mailed the new prospectus. Tell me who in our gubment is capable of taking on the FED and Treasury to stop it?



Zippyin Annapolis's picture

Argentina confiscated all retirement accounts (then backed them by Argentinas "full faith and credit") to prop up their currency. Government created and managed IRAs and 401k's are the first step in my view.


Why would anyone convert a Roth IRA into a taxable income stream even if there is a "guaranteed return"?


Lower income folks can Now set up Roth IRAs--tax free returns.


Also this year and next Everyone can convert their IRS's into Roths. This would normally be a no brainer Except for the Cleptocracy aka the US Treasury. The possiblity of paying taxes currently to convert ordinary IRAs to a Roth IRA has to be a meaningful risk given the lack of intergrity the US Treasury has shown over the last 3 years.


Chances are there will pass a law passed in the coming years assessing a fee or tax on Roth payouts. Count on it.

Anonymous's picture

All these liberal crack pot concepts are just more incentive for incoming residents to stay "off grid" and "under the radar".

Anonymous's picture

These assholes must have seen this coming ever since the day they created the IRA as an investment vehicle. Knowing full well that people would take advantage of this; all the while imposing penalties for removing monies from your 401(k) or IRA to trap people into keeping their retirement money invested.

I wouldn't doubt that along with mandating that you feed your retirement monies into those government bonds they will also up the penalty, like the death tax, to keep you from trying to remove your money from those retirement accounts thereby insuring that the Vampire Squid can suck the life out of them.

Me also guesses that this is what they planned when good ole boy GW Bush came out with those alternate retirement savings account after his 2004 election. If I remember right they were talking up big how the government could offer safe investments such as bond funds and annuities.

Once again we've been led down the primrose path of good intentions on the road to hell.

Anonymous's picture

It's inheritance tax, not death tax. What penalty are you talking about? The snot nosed kids that get mommy or daddy's money did nothing to earn it. Why should this be the one way a person can come into a boat load of money w/out paying? It is that type of stupidity that causes the deficit to be so high. People who work hard, lower their tax. People sucking off the old man's hard work and good name, tax the living shit out of them!

legerde's picture

Im so sorry your dad wasn't rich.   Mine wasn't either...  It's no reason to hate...

I pay taxes on the money I earn now.   This money should be "mine" to do with as I please.. I already paid tax on it. 

If you have a children, you "usually" want them to succeed.   A good man protects his loved ones.  I am ensuring that my children will never need me, but it will be nice to keep the fruits of our tight-nit families efforts "in" the family.   Taxing our family twice is unfair.

I'd rather my kids benefit from the labor than feed the monster of our corrupt government.


docj's picture

If they simply replayed the market tape from 2009 (skunk it in March, run it back up through October) people would be primed to have Lord Barry ride in on his unicorn.

"I'm from the Gubiment and I'm here to help."

And the sheeple will bleat approval, never knowing this was all done on purpose.

Anonymous's picture

Interestingly, the Fidelity 401K options of the plan my corporation uses eliminated gold funds in 1999.

Anonymous's picture

Before you guys go running around like Tila Tequila. Check out

Guilarducci is the biggest proponet of it. The principle is equivalent to the Federal Employee's Thrift Saving plan. It's the creation of a standardized index like tax deferred account - that would absorb voluntariliy & compete with the present private sector providers in the tax-deferred/deductible Traditional -SEP IRA & Solo & Large 401K/403b/457. So instead of having the financial industry (number one reason this is not going anywhere) running expensive & fee ridden funds. The Roth IRA then would be replaced by a Lifetime Savings Account (tax defferred account) concept & you can always buy annuities.

But realize that is not going anywhere. Because it will cut profits in the financial industry. And what have we learn to so far. Obama's the financial industry bottom bitch.

By the way is like HealhCare reform. It's should be called the insurance inducstry guarantee profit act. Younger people will pay more, the would cover less -There ideal policy is a Health Savings Account with high deductilbe & nickel & dime you to death.

A liitle bird.

DiverCity's picture

Well bye, bye birdy.  You're wrong -- it will go somewhere and that's where at some point, like Guilarducci advocates, it will be the only investment option.

Anonymous's picture

We have about 500 dollars in a 401K that has not been fed in years.

If we lose job, 401k goes bye bye in a few days and gets assimilated into monthly budget for house. If we go part time, same thing.

We consider this 500 dollars collateral damage or loss. Everything else is OUT, Free and Clear. King Cash.

Annuities is the last place we need to be, as Wentworth would have you say:


Anonymous's picture

I wrote about this same Businessweek story on Monday!

Chopshop's picture

great piece.  entirely on-point up until the selective default absolute nonsense conflation.

Apocalypse Now's picture

I have no issue with adding the option of treasuries to the 401k menu, and at the same time the menu option of adding a gold or a precious metal choice run by a reliable entity like GATA (that audits gold holdings) should be mandated.

I WOULD ARGUE LOUDLY THAT Pension and 401K administrators/fiduciaries are not fulfilling their prudent man principle rules including options that encompass a fully diversified portfolio if the menu option does not include gold (this was the #1 investment with the highest returns over the last 10 years). 

Think about that, we should all push for the inclusion of gold/silver investments (auditable) and other hard asset commodities in the 401K menu.  Think about it, real estate is included as a diversified option, why not hard asset choices with commodities to further diversify portfolios?

Andrew E.'s picture

Apocalypse Now, you write:


"at the same time the menu option of adding a gold or a precious metal choice run by a reliable entity "

I agree but this will never happen.  The Fed and USG, though they would deny it publicy under threat of torture, know full well the power of gold. That's why they confiscated it once and hamstring its ownership today with capital gains taxes.  For all their professed faith in the fiat dollar, the Fed and USG will never willingly repeal the legal tender laws and let the Dollar compete on a level playing field with gold.  And allowing direct gold investment/ownership via 401(k)/IRA plans is a slipperly slope on the way to the remonetization of gold.

Neo-zero's picture

"The Fed and USG, though they would deny it publicy under threat of torture, know full well the power of gold."


Funny you bring up the threat of torture on a George Washington guest post after all torture doesn't work or so I've heard!


Great post GW.  I mean that sincerely.  I posted something about the jesse piece earlier this week and I see others have also.  I'm sure this has been on alot of minds and if not then people need to be informed.

ATG's picture

Investing with a rear-view mirror extremely


Ripped Chunk's picture

SICK OF jubilee prosperity link DID I SAY I WAS SICK OF IT?

Crime of the Century's picture

+1 The Fed offers a bond index "F" fund menu option in their own retirement savings plan. Ain't no way they would allow PMs in unless it was GLD/SLV, and if they did that it would be as another system prop. I wonder what would happen to gold held in IRAs in the outlined scenario... nothing good I would imagine.

dark pools of soros's picture

most 401k plans don't even offer real emerging market funds..   they will after it peaks so they can rob you..   and they will offer gold too once that peaks again


401k is only good for the matching - all you have to do is break even and you double. (I assume 100% matching..sorry if you are getting robbed)  Take the rest of your money and do anything you damn well please with it

Species8472's picture

The Feds also offer the 'G' fund. A stable value fund paying the 10 yr tBond rate.

crzyhun's picture

Robo this is a grab like no other. I have to say as a professional this is the deathnel of free markets. Sorry about your girl friend. For my accounts we did fine 2000, and yes got hit hard in 2007-8. Made up most of it is '09 only  a little off pace. The key for any good and solid advisor was to work the account according to the clients goals, needs, tolerances and reassure, but work like hell to make good on the oath, to do no harm....This will do major harm if we get a whiff of inflation, have higher taxes and people under save. Fixed products have a role but not a sole role like a fixed annuity/SS or any other guaranteed income contract.

RobotTrader's picture

So far, bonds have been in a 26-year bull market.

The Sheeple will be happy to have their retirement invested in "risk-free" assets.

Every single week, my girlfriend begs me to transfer her stock allocation in her 401(k) account and put it into something "safe".

She got caught at the top in 2000, and watched her account get cut in half.

Then rode things up into 2007.

Then watched her account crash in 2008.

Never again.  She says her account has not recovered yet.

I bet there are millions out there just like her.

Sam Clemons's picture

My g/f just got an email saying that their "Guaranteed Income Fund," which invests completely in Govt Securities, is "guaranteed at 3% for the first 6 months of this year."  Seems like something is going on.  This is of course less interest than the PIMCO fund also offered.



Shiznit Diggity's picture

Good, then there's no reason for compulsory annuitization. Make it voluntary.