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Subject:  401K Success Tax Date:  2/20/1998  6:58 PM
Author:  snoopy33 Number:  1879 of 99732

Hello there,

On my quest to become Foolish, I've been thinking
about the Fed's 'Success Taxes' ...

Has this been discussed here with possible
approaches to Foolish 401K/IRA planning
with regards to minimizing/eliminating the
success tax?

For those of you not familiar with the tax,
it affects people in two ways:

1. It penalizes people who through the use
of tax favorable plans (such as a 401K)
accumulate wealth beyond what the
government thinks is reasonably required
for a comfortable retirement.

Under current legislation, withdrawls and
payments from all pension and retirement
accounts that exceed $160,000 per year
(this is the 1997 level indexed for inflation)
suffer a 15% excess-distribution tax.

2. The second way the law affects retirees
is the excess-accumulation tax where
it becomes effective when a retiree dies
with an account the government deems
'too much money'. Currently, it's
approximately $1.2 million for a 65-year
old and $1 million for a 75-year old.

Amounts over this will result in a 15%
tax hit. This only affects sigle people
as excess-accumulation tax can be
deferred if assets are transferred to a
surviving spouse.

Any comments?
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