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Dear Dave: Do I Own My 401(k)?

An excellent question these days, with the Obama administration opening a glorified Q & A session on whether 401(k) participants should be forced into government treasuries.

Listen up folks…

Qualified retirement plans are Government-created assets pursuant to Internal Revenue Code (“IRC”) section 401(a) and are held in trust pursuant to IRC §501(a ) and the Employee Retirement Income Security Act (“ERISA”) §403(a). This means that while you can direct the money in your account, there are many restrictions on what you can do with the money because it is being held for the benefit of your future retirement. It’s not technically your money just yet.

Ordinarily, trust accounts don’t represent a real problem, because the trust is a contract that lays out all of the rules of the trust. If you are the contract owner, then at the very least, you know that you have legal control over what happens to the money.

This is not the case with government sponsored retirement plans. Yes, there is a trust account, but there’s not really any sort of real contract in place. Instead, what you have are various sections of law. The basis of all of your retirement accounts can be found here:

Sec. 1103. Establishment of trust

(a) Benefit plan assets to be held in trust; authority of trustees Except as provided in subsection (b) of this section, all assets of an employee benefit plan shall be held in trust by one or more trustees. Such trustee or trustees shall be either named in the trust instrument or in the plan instrument described in section 1102(a) of this title or appointed by a person who is a named fiduciary, and upon acceptance of being named or appointed, the trustee or trustees shall have exclusive authority and discretion to manage and control the assets of the plan

The only real exception(s) to the rule(s) are life insurance contracts and individual retirement accounts (IRA accounts), but of these, IRA accounts are governed by similar rules. They too, are trust accounts with various restrictive rules and more “for the benefit of” wording. So of these, you only get true ownership when investing your money into a private insurance contract.

So, do you own your 401(k) or IRA? Well, it’s pseudo ownership. If the government can change the rules on your retirement account (which they can, they do, and have done so in the past), you have the illusion of ownership, while the government retains ultimate control over your money. So, you could think of it as a fascist-retirement account.

This entry was posted on September 18th, 2012 by David. Edits may have been made to keep this entry current. · No Comments · Investing, Retirement Planning

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