Tag Archives: tax planning

Your 2018 Tax Guide

With all the recent attention from tax changes made by Congress recently, many of us are wondering how it will affect us. Here’s something you might find is useful. Just remember I’m not licensed or qualified to give tax advice so this is information only.

It comes from an insurance company called Athene. Technically, their full name is Athene Annuity and Life Company. They are my current company of choice when it comes to shifting some of your retirement reserves into a protected place.

Much of the money you have should be exposed to the markets so it will grow and be there in the future when you need it to pay bills. But in the meantime, you need a way to protect or insure yourself against a market crash. The insurance ‘policy’ or contract that I consider the best possible one on the market comes from Athene.

If you click on the ‘tax’ image just above, you can download a copy and save it somewhere as reference material.



I Inherited a Roth IRA. Now what?

My Comments: More and more people have Roth IRA accounts. A common question about retirement is whether to draw money from their Roth IRA first or take money from their non-Roth retirement accounts first.

It depends. Any money not yet taxed is going to get taxed. Period. The Roth IRA money comes out tax free; the taxes have already been paid. If your non-spouse beneficiary is in a high tax bracket, it may be better for them to get it in the form of Roth money.

Most beneficiaries are simply happy to get unexpected money. If they have to pay tax, it’s not an issue. You can run a million scenarios and when all is said and done, it makes little difference in the grand scheme of things.

June 28, 2013 by Dan Moisand at MarketWatch.com

When you inherit retirement plans, the rules for how those funds are taxed and the options available to the beneficiary vary based on the type of account and whether the beneficiary is a spouse or not.

Today I explain to a non-spouse beneficiary some of the rules that apply to inheriting a Roth IRA. I also answer a reader question about one way to increase her Social Security payments even though she started taking benefits early at a reduced rate.

Q. My Dad is 74, and he has a ROTH IRA as well as a 401(k). When he passes away, my mom will inherit the retirement accounts, and then we his sons will. My question is can I, as a non spouse beneficiary, rollover the ROTH IRA into my personal ROTH IRA? — C.B.

A. No you cannot roll the Roth IRA money into your personal Roth IRA. Only spouses may do that. If your mother rolls the Roth IRA into her own Roth IRA, it is treated as though she had always been the owner of those funds, so those funds will continue to be exempt from Required Minimum Distributions (RMD), an attractive feature of Roth IRA’s. Also, she would name the beneficiaries. It is important to check that the beneficiary designations on all accounts match the wishes of the current account owners.

The beneficiary designation trumps anything written in one’s will or trust agreements. I saw a case in which the wife had a small IRA that named her church as primary beneficiary. When her husband died, she rolled his account into her IRA but did not change her beneficiary designation. When she passed away, the church was entitled to all of the funds. This was an unpleasant surprise to the beneficiaries.

You have two basic options as a non-spouse inheritor; take a lump sum or, transfer the funds into an account titled as an “inherited Roth IRA.” Taking the lump sum is pretty simple. The lump sum you receive is not subject to tax. Once you get your check, if you wish to invest any part of it, it will be taxed just like funds in any other non-retirement account.

Most inheritors with an eye on the long term prefer to rollover the money to an inherited Roth IRA. The assets continue to grow untaxed, you can choose your own beneficiaries and withdrawals are tax free.

You cannot, however, let all the account just sit in the inherited Roth IRA. By Dec. 31 of the year after the year in which the owner died, you must have begun taking required minimum distributions (RMD) annually. If you don’t make the RMD by that deadline, you will need to have withdrawn all the assets by the end of the fifth year after the year of death.

The RMD you will be subject to is based upon the IRS’s single life expectancy table. The value of the account on Dec. 31 of the year death is divided by the beneficiary’s life expectancy listed on that table to obtain the first RMD amount. For example, if you are 55 at the time, the table says your life expectancy is 29.6, you would divide the Dec. 31 value by 29.6. In the following year, you use the following Dec. 31 value and divide by one less year (28.6). The next year, use the value as of the next Dec. 31 and 27.6.

You mentioned you had brothers. There is one more step to consider. If your mom lists more than one person as beneficiary, you should have the shares of the account separated into individual inherited Roth IRAs by Dec. 31 of the year following the year of death. This enables each beneficiary to use their own life expectancy. Otherwise, distributions are calculated based upon the oldest beneficiary’s age causing distributions to occur faster than necessary.

This can be particularly important with non-Roth retirement money like a 401(k) in which distributions are taxable. Generally, beneficiaries wish to have the smallest RMD’s possible in order to control taxation better. A beneficiary can always take more than the RMD but the lower the minimum, the more flexibility in tax planning.

Again, make sure all the beneficiary designations on all accounts reflect the owner’s wishes. It should be noted that the rules are different if any of the beneficiaries are beneficiaries through a trust that is named as beneficiary of a retirement account. Naming a trust can be helpful but if not done correctly, can result in an acceleration of taxation.

Also, to accommodate an account holder’s specific wishes, many attorneys prepare customized beneficiary designations. Not all 401(k) plans will accept customized beneficiary designations so many will roll those funds into a traditional IRA.

America’s Wealth Inequality Is Getting Worse

My Comments: Readers of this blog know I’ve railed against the growing income inequality in this country for a long time.

Income inequality is inherent in the human condition. Since recorded time began, it’s clear there were “haves” and “have-nots”. In recent times, the disparity really started to diminish following the great depression in the 1930’s.

What we call the middle class, those somewhere between the “haves” and “have-nots”, established itself as an economic force in the world, especially here in the US. It led to economic prosperity across the entire population which gave rise to our dominant trading status on the planet. By increasing the economic prosperity of a larger percentage of the population, you allowed the “haves” to grow and keep their share of influence and status.

The most recent national election cycle brought us the phrase Make America Great Again. It’s easy to say and though it has different interpretations across our people, it’s a reflection of our global strength and economic dominance. But that’s declining and we can attribute the decline for the emergence of Donald Trump and company.

I really don’t understand why there is absolutely no apparent effort by this new administration to address the growing economic disparity in this country. You’d think there’s be an interest in everything necessary to promote the middle class, from universal healthcare, to education for the masses, to a more equitable tax code, everything necessary to support the efforts of the declining middle class to once again Make America Great.

Elena Holodny / May 1, 2017

It’s no secret that the US has an inequality problem.

But it is worth considering what may be the factors exacerbating the disparity.

In his recent commentary, Byron Wien, the vice chairman of Blackstone Advisery Partners, offered some thoughts as to why the inequality gap in the US has grown wider since 2000.
He argues that it has something to do with the fact that the wealthy own homes and stocks, while the less affluent do not.

“How did [the widening inequality gap] happen? Wealthy people own the expensive real estate where they live, and may have other expensive properties as well. They are also more likely to own common stocks. Both the real estate and the equities have appreciated,” he wrote.

“The less affluent tend to be renters with limited equity holdings. Many live paycheck to paycheck and their personal wealth has not appreciated significantly,” he added.

Wien also argued in his commentary that “in spite of the wealth disparity, inequality does not seem to be a major political issue at this time.” However, given the rise of populist movements both in the United States and across the world, at a time when inequality has grown amid increased globalization, some could argue that there might be a correlation between rising inequality and shifts in the political climate.

In any case, taking a look at the data on US inequality is pretty eye-opening.

Back in November, Deutsche Bank’s chief international economist Torsten Sløk sent around a chart showing the share of US household wealth by income level. Notably, the top 0.1% of households now hold about the same amount of wealth as the bottom 90%.

Relatedly, back in August, Goldman Sachs’ Sumana Manohar and Hugo Scott-Gall shared a chart comparing a given country’s gross domestic product per capita to its Gini coefficient.

The Gini coefficient is a measurement of the income distribution within a country that aims to show the gap between the rich and the poor. The number ranges from zero to one, with zero representing perfect equality (everyone has the same income) and one representing perfect inequality (one person earns the entire country’s income and everyone else has nothing.) A higher Gini coefficient means greater inequality.

Developed-market economies such as those in Germany, France, and Sweden tend to have a higher GDP per capita and lower Gini coefficients.

On the flip side, emerging-market economies in countries like Russia, Brazil, and South Africa tend to have a lower GDP per capita but a higher Gini coefficient.

The US, however, is a big outlier. Its GDP per capita is on par with developed European countries like Switzerland and Norway, but its Gini coefficient is in the same tier as Russia’s and China’s, both of which are emerging markets.

And finally, the Goldman duo also shared a chart comparing the mean and median incomes in the US from 1975 to 2014.

This is another informal measure of inequality: A handful of hyper-affluent people can skew a mean upward while not changing the median very much. That means a higher degree of inequality will most likely be reflected in a bigger spread between a mean and median income.

As you can see in this last chart, the gap between the two has been widening over time, which suggests that income inequality has been growing.

What Are the Odds the IRS Will Audit Your Tax Return? And What Should You Do If It Does?

income taxMy Comments: There is a significant difference between avoiding taxes and evading taxes. Not less an authority figure than a former Supreme Court justice expressed that “…there is no obligation to pay more in taxes than absolutely necessary”. But evading taxes will perhaps land you in jail.

That being said, the IRS is NOT going to tell you about every loophole or allowable strategy in the play book to help you pay less tax. Their job is to make sure that everyone earning money files a tax return and if a tax is dues, was it paid on time.

It’s up to us to figure out what we can do to avoid paying extra money in taxes than is absolutely necessary. One can argue that pushing the envelope is OK until you are caught. I’m not going to go there, but what follows is one element in the games we play.

By Kevin McCormally, May 31, 2016

Tax audits are in the news more than usual this year, since Donald Trump says the fact that he’s being audited by the IRS prevents him from releasing his returns as part of his quest for the presidency.

But if being audited blocked the release of a tax return, we never would have seen Barack Obama’s or George W. Bush’s or Bill Clinton’s or any other recent president’s. Even Richard Nixon released his returns while they were being audited (the fact that that return led to the House Judiciary Committee approving an Article of Impeachment against Nixon is another story).

Why? Because when it comes to the odds of being audited, one thing is crystal clear: If you’re living in the White House, your odds are 100%. The returns of the president (and the veep) get the going over every year, as required by section of the Internal Revenue Manual.

As the head of the IRS, John Koskinen, told us earlier this year, “So, you know, anyone running for president or who’s going to be president can look forward to having their tax returns audited every year.”

Assuming you’re not aiming to run the free world, though, what are your odds of being audited . . . and what should you do if you are?

This is the quintessential good-news/bad-news story.

The good news: If you’re worried that the tax return you just sent to the IRS will be audited, breathe easy. Koskinen is telling anyone who will listen that budget cuts have severely limited the agency’s ability to review returns for accuracy. Audit rates for individual tax returns fell last year to the lowest level in a decade … and will fall even more this year.

The bad news: If you’re an honest taxpayer, you’ll be disappointed to learn that the IRS says that every $1 it spends on audits and other “enforcement” activities brings in $4 to the U.S. Treasury. Falling audit rates mean dishonest taxpayers will be allowed to keep billions of dollars they ought to be paying in taxes.

But just what are the chances you’ll be audited, that your Form 1040 or 1040-A or 1040-EZ will be plucked from the 140 million-plus returns for a going over?

Clearly, the odds are reassuring. The vast majority (more than 99%, in fact) of individual income tax returns skate safely past the IRS audit machine.

Better news: The 1-in-119 chance of being called on the carpet vastly overstates the severity of the situation. More than three-quarters of all audits are handled by mail, not by mano a mano combat with an IRS agent during an office examination or a field audit. And if your return doesn’t include income from a business, rental real estate or a farm, or employee business expense write-offs or earned income credit, the basic 1-in-119 chance of being challenged dwindles to about 1-in-330.

Another piece of rarely reported good news: Each year, tens of thousands of taxpayers walk out of an audit with a check from the government. In 2015, for example, almost 40,000 audits resulted in refunds totaling nearly $1.1 billion. And 9% of field audits and 12% of correspondent audits end with the conclusion that everything is hunky-dory: no change in what the taxpayer owes Uncle Sam.

The 1-in-119 chance of being audited is the overall average from last year. As noted above, there’s an even smaller chance this year. But in any year, your personal odds turn on the kind of return you file and the type of income you report.

Our calculator, based on official IRS data on returns audited in 2015, will give you a good idea of the odds that your personal Form 1040 (or 1040-A or 1040-EZ) will be selected for review—either by mail or in person. And, remember, even if it is, there’s a decent chance you’ll walk away unscathed or be one of the lucky ones whose audit results in a refund.

With few exceptions, of course, the IRS doesn’t randomly choose which returns to audit, although random reviews are used to help the IRS calibrate the computers that identify the juiciest targets.

Over the next few months, the IRS will be plugging data from more than 140 million 2015 tax returns into a computer that scrutinizes the numbers every which way and ponders how the picture you paint of your financial life jibes with what it knows about other taxpayers. The computer tries to spot returns that are most likely to produce extra tax if put through the audit wringer. The computer’s choices are reviewed by a human being who can overrule them if, for example, an attachment to your return satisfactorily explains the entry that set the computer all atwitter. Short of such a veto, your name will go on the list.

Even if your return survives the computer’s scrutiny, you’re not necessarily safe. You may have listed an investment in a tax shelter the IRS is particularly interested in, for example, or the agency might decide to take a closer look at your return because it smells of the latest scam du jour identified by the IRS.

And there’s always the chance that someone has fingered you as a tax cheat. The IRS encourages such tips and even pays a bounty for leads that pay off in extra tax.

A Not So Simple Tax Question

TaxMagnificationMy Comments: I try to not post anything with political implications. And while this post looks like one, there are larger issues with implications for Republicans, for Democrats, and Libertarians.

I’ve argued for years that the current chasm between the ‘haves’ and the ‘have nots’ in this country must be bridged. This article from the Financial Times speaks to an issue with the Tax Code that contributes to the visceral dislike of so many voters for politics as usual, and the favors that Congress promotes, that contribute to the growing disconnect between the electorate and those presumably in charge.

By Gillian Tett, The Financial Times, May 26, 2016

Donald Trump loves to disregard political rules. Now he is trying to break yet another: although it has long been customary for American presidential candidates to release their tax returns, Mr Trump is refusing to comply.

He says this is because these are being audited by the Internal Revenue Service; critics say he has something to hide (experts agree that being audited does not preclude someone from releasing the returns). Either way, the row is becoming poisonous — not least because polls suggest that two-thirds of Americans think he should release those returns.

As the mudslinging intensifies, it is not just the issue of Mr Trump’s tax returns that should make American voters angry. The bigger scandal is the way the corporate tax code treats those who own or develop real estate, and construction groups in a wider sense.

For if it were to emerge that — as his critics suspect — Mr Trump has paid little (or no) tax in recent years, the dismal truth is that he is not alone. On the contrary, there are so many loopholes that an audit of most property groups would show rock-bottom tax rates. Or, as one powerful real estate titan recently observed to me (in private): “If you are a developer who is paying tax, you have to be pretty dumb.”

Normally, these loopholes do not attract much attention. Corporate tax is fiendishly complex and many large property companies are privately held. The type of scrutiny that publicly listed companies face in relation to tax has rarely troubled big construction groups.

The row about Mr Trump’s returns has served the public interest by casting a spotlight on some of the practices. Some of these are quite colourful: a property classified as “agricultural” or “environmentally protected” can often escape certain federal and municipal taxes. It recently emerged that Mr Trump got a $39.1m tax deduction on a New Jersey golf course in 2005 because he donated the land for “conservation easement” — and installed some goats to claim it as farmland too.

The most important loopholes cannot be easily photographed. Developers can depreciate the value of their properties to reduce their tax liabilities, or appraise values in opaque ways. Another recent revelation is that Mr Trump claims for tax purposes that one of his golf courses in Ossining is worth a mere $1.35m — while local realtors have suggested a figure of $50m is more appropriate.

If real estate groups organise themselves into partnerships, they can write off mortgage interest payments against tax. They can also use the “1031 clause” in the property code, which stipulates that such partnerships can defer tax on a real estate sale if they “swap” their holding for another piece of property.

President Barack Obama tried but failed to curb the use of the clause. Even if a developer still faces a tax liability, they can almost always arrange their affairs to ensure that the gains are taxed as capital gains, not income. For top earners, this cuts the tax rate from 39.8 per cent to 23.8 per cent.

Such loopholes are not unique to the world of property, or America. But decades of lobbying has made the US real estate pattern particularly extreme. While it is unclear how much revenue is being lost as a result, some hint of the pattern can be seen by looking at some number crunching recently performed by colleagues on FT Alphaville.

Using data from the Bureau of Economic Analysis, they calculate that between 2011 and 2014 residential real estate was the single most profitable American business sector, ahead of non-residential and construction. If you look at the amount of tax paid, the construction sector was third from bottom, while the non-residential and residential sectors sat well below their profit rankings too. That means that real estate is producing profits, much of which are escaping the tax net.

From a policy perspective, this looks bizarre — and wrong. There may have once been good reasons why governments felt the need to support the real estate industry: to encourage urban development, or offset the impact of high interest rates, say. But today, rates are rock bottom, and property developers are some of the wealthiest people in the country.

So perhaps it is time for Mr Trump’s critics to widen their attack. Yes, it is interesting to speculate about how little tax Mr Trump has paid; and yes he has probably been more “creative” than most. But the really interesting question is what Mr Trump — or Hillary Clinton — would do in office. Will either of them actually abolish those real estate loopholes? Or just crack down on more visible targets such as hedge funds, banks or technology companies? No prizes for guessing the answers. And therein lies another outrage.


income taxMy Comments: I think I found this article published in Medical Economics some months ago. I apologize for my inability to provide accurate sourcing. That aside, we have ZERO obligation to pay more in taxes that absolutely necessary.

Just remember, the IRS has a responsibility to collect taxes. It’s up to us to figure out legitimate ways to NOT pay taxes. The burden of compliance is on us as taxpayers, so don’t expect the IRS to wave any flags that say “no taxes are necessary”. It’s not going to happen. Here’s the text I found:

Since 2001, the tax code has undergone 4,680 changes—an average of more than one change per day. Even worse, physicians are paying more in taxes. Because of these trends, intelligent tax preparation has become essential, not optional.

To help, some changes in U.S. tax laws are highlighted in this article. This is by no means a complete list, but identifying strategies for dealing with these areas represents a big step to creating to a solid tax strategy.

On New Year’s Day 2013, the Bush-era tax cuts expired. Now the rich pay more (or are supposed to.) The top tax rate for individuals earning $400,000 or more, and married couples filing jointly earning $450,000 and up, is 39.6%. This is the highest rate in nearly 15 years.

Capital gains rates also increased under the same “fiscal cliff” deal. The wages of individuals earning more than $200,000 ($250,000 for married couples), now are subject to Medicare surtax. This will be tacked on to wages, compensation, or self-employment income over that amount. The surcharge is .9%.

There is not much to be done about these increases, which were a long time coming and received bipartisan support. While taxes can’t be eliminated altogether, they can be significantly reduced with proper preparation. Such preparation may include structured trusts, limited partnerships and other legal entities.

Another tax is the net investment income tax, under which individuals earning $200,000 ($250,000 for couples) may now owe more. Taxpayers with net investment income and modified adjusted gross income (AGI) will likely pay more. Net investment income encompasses: income from a business, dividends, capital gains, rental and royalty income, and/or interest.

Depending on any business or investment activities outside your practice, there may be circumstances where you owe more. Be sure to check with a professional to assure all income outside of your medical practice is accounted for appropriately. Please note that wages, unemployment compensation, operating income from a non-passive business, Social Security, alimony, tax-exempt interest, self-employment income, and distributions from certain Qualified Plans are excluded—for now.

In addition, personal exemptions (PEPs) for high earners may be eliminated. The phase-out of the personal exemption affects individuals with adjusted gross incomes of more than $254,200 and $305,050 for married taxpayers. They end completely for individuals who earn $376,700 or more and $427,550 for married taxpayers. While PEPs are generally a drop in the bucket for high earners—it was only $3,950 in 2014—it’s a lost deduction that can add up over several years.

Interestingly, while the definition of marriage is decided by individual states, the Internal Revenue Service recognizes a legally married same-sex couple in all 50 states, no matter what their legal status is in their home state. This can affect tax, estate, legal, and charitable planning.

Savvy estate planning for all married couples and individuals may involve various types of trusts, such as a charitable-lead trust. When created and structured properly, the charitable-lead trust earns an immediate tax deduction, avoids taxes on appreciated assets, and may provide an inheritance for heirs later.

A charitable-remainder trust potentially avoids capital gains taxes on appreciated assets, allows you to receive income for life, and provides a tax deduction now for your future (posthumous) charitable contribution. For large, significant charitable gifts, donating appreciated stocks or mutual fund shares (provided you’ve owned them for over 366 days) is a way to boost your largesse.

Under IRS rules, the charitable contribution deduction is the fair market value of the securities on the date of the gift—not the amount you paid for the asset. And there is no tax on the profit. This only works for assets that have appreciated in value, not for those on which you have a loss.

Now for the good news: You may be able to benefit from Tax-Free Education Reimbursements for continuing medical education (CME) via a Section 127 educational assistance plan, depending on the way your practice (or your employer’s practice) is structured.

If you are an employee and your employer does not pay for the CME, it is considered a miscellaneous itemized deduction subject to the 2% AGI limitation. Under this scenario it is better to negotiate to have your employer pick up the costs. Then it is a deduction for the employer and nontaxable to the employee.

If your practice is a sole proprietorship or a single-member LLC, than the cost should be deducted on your Schedule C, and is a deduction from AGI (and self-employment tax). If the practice is a multi-member LLC, partnership, or S corporation, it is best for the entity to pay the expense. Doing so reduces the flow through income from the entity and effectively reduces AGI.

Under the partnership scenario (or an LLC taxed as a partnership), if the operating agreement states that the expense must be paid by the partner/member and that the entity will not reimburse the costs, then the expense can be deducted on Schedule E of your tax return (thus reducing your AGI). This treatment is not available to an S corporation.

The conversion privilege for Roth individual retirement accounts (IRAs) continues. Converting a traditional IRA into a Roth account is treated as a taxable distribution from the traditional account with the money going into the new Roth account. The result of this conversion is a larger federal income tax hit (a larger state tax hit is also likely).

But the benefits may outweigh the extra money owed. At age 59½, all income and gains accrued in the Roth account can be withdrawn free from federal income taxes, provided at least one Roth IRA has been open for more than five years.

In the event that future federal income tax rates rise, the Roth IRA’s balance isn’t affected. Provided the account is over five years old, if you die, your heirs can use the money in your Roth account without owing any federal income tax. And unlike traditional IRAs, Roth IRAs are exempt from required minimum distribution (RMD) rules applied to other retirement accounts, including traditional IRAs.

Under the RMD rules, you must start taking annual withdrawals after age 70½ and pay the resulting taxes. But you can leave Roth IRA balances untouched for as long as you wish and continue earning federal-income-tax-free income and capital gains. And there is no income restriction on Roth conversions: Everyone, no matter their income, can do them.

Selling a home may be excluded from tax. How? Suppose an individual sells a primary residence. She or he may exclude up to $250,000 of gain. A married couple may exclude up to $500,000.

There are a few caveats, however. Principal ownership of the property, for at least two years during the five-year period ending at the sale date, is required. Also, the property must have been a primary residence for two years or more during the same five years. The maximum $500,000 joint-filer exclusion requires at least one spouse to pass the ownership test; both need to pass the use test.

Regarding previous sales, if gains from an earlier principal residence sale were excluded, there is typically a wait of at least two years before taking advantage of the gain exclusion provision again. Married joint filers may only take advantage of the larger $500,000 exclusion if neither spouse claimed the exclusion privilege on an earlier sale within two years of the ¬latter.

There is also positive news regarding the dependent care credit. If you employ child care for one or more children under the age of 13 so that you can work (or, if you’re married, you and your spouse can work), you may be eligible for this credit. Affluent families receive a credit equaling 20% of qualifying expenses of up to $3,000 for one child, or, up to $6,000 of expenses for two or more. The maximum credit for one child is $600; for two or more it’s $1,200.

The credit is also available to those who incur expenses taking care of a person of any age who is physically or mentally unable to care for themselves (i.e., a disabled spouse, parent, or child over the age of 13).

“Borrowing” from Retirement Savings

house and pigMy Comments: There is a fundamental truth to be gleaned from demographics. A great majority of us live well into our 80’s and beyond. And given the nature of our society, it’s better to have more money than less money.

Accounts like an IRA, or a 401k or any number of other titles, implies that money in those accounts has not yet been taxed. It’s an incentive given us by the IRS to accumulate a pile of money to use down the road. According to this article, over 30 million of us have tapped into our retirement savings early.

It’s rarely a good thing to remove money from these accounts until you have stopped working for money, ie ‘retired’, since your chances of putting it back and having enough when you cannot work is typically slim to none. That so many have reached into their accounts suggest that our children and grandchildren are going to be thoroughly pissed off when they have to come up with the money needed to keep us alive.

by Tyler Durden on 09/24/2015

The ongoing oligarch theft labeled an “economic recovery” by pundits, politicians and mainstream media alike, is one of the largest frauds I’ve witnessed in my life. The reality of the situation is finally starting to hit home, and the proof is now undeniable.

Earlier this year, I published a powerful post titled, Use of Alternative Financial Services, Such as Payday Loans, Continues to Increase Despite the “Recovery,” which highlighted how a growing number of Americans have been taking out unconventional loans, not simply to overcome an emergency, but for everyday expenses. Here’s an excerpt:

Families’ savings not where they should be: That’s one part of the problem. But Mills sees something else in the recovery that’s more disturbing. The number of households tapping alternative financial services are on the rise, meaning that Americans are turning to non-bank lenders for credit: payday loans, refund-anticipation loans, pawnshops, and rent-to-own services.

According to the Urban Institute report, the number of households that used alternative credit products increased 7 percent between 2011 and 2013. And the kind of household seeking alternative financing is changing, too.

It’s not the case that every one of these middle- and upper-class households turned to pawnshops and payday lenders because they got whomped by an unexpected bill from a mechanic or a dentist. “People who are in these [non-bank] situations are not using these forms of credit to simply overcome an emergency, but are using them for basic living experiences,” Mills says.

Of course, it’s not just “alternative financial services.” Increasingly desperate American citizens are also tapping whatever retirement savings they may have, including taking the 10% tax penalty for the privilege of doing so. In fact, 30 million Americans have done just that in the past year alone, in the midst of what is supposed to be a “recovery.”

From Time:
With the effects of the financial crisis still lingering, 30 million Americans in the last 12 months tapped retirement savings to pay for an unexpected expense, new research shows. This undercuts financial security and underscores the need for every household to maintain an emergency fund.

Boomers were most likely to take a premature withdrawal as well as incur a tax penalty, according to a survey from Bankrate.com. Some 26% of those ages 50-64 say their financial situation has deteriorated, and 17% used their 401(k) plan and other retirement savings to pay for an emergency expense.

Two-thirds of Americans agree that the effects of the financial crisis are still being felt in the way they live, work, save and spend, according to a report from Allianz Life Insurance Co. One in five can be called a post-crash skeptic—a person that experienced at least six different kinds of financial setback during the recession, like a job loss or loss of home value, and feel their financial future is in peril.

So now we know what has kept meager spending afloat during this pitiful “recovery.” A combination of “alternative loans” and a bleeding of retirement accounts. The transformation of the public into a horde of broke debt serfs is almost complete.