Today’s “Slap in the Face” Award comes from the U.S. Senate. And it’s for anyone with stocks, mutual funds or bonds in their IRAs. And this one really stings… or maybe I should say “stinks.”

One of the ways to minimize taxes you’ll pay on funds held in a tax-deferred account is to transfer your securities out of your IRA when they’re in a severe down period.

[ad#Google Adsense 336×280-IA]It may be one of the few positive things you can do during a downturn.

Let’s say you held 1,000 shares of Marathon Oil Corp. (NYSE: MRO) in an IRA when it dropped to $6.66 in February of this year.

If you had jumped at the opportunity to transfer your Marathon shares out of your IRA and into a taxable account, at the recent market price of $16.21, you would have realized a tax savings of about 143%.

How? You’re taxed on the dollar amount of each distribution. At a market price of $6.66 last February, you’d have been taxed on just $6,660.

At the recent market value of $16,200, your withdrawal would have cost you a lot more.

It doesn’t take a Wharton MBA to see the advantage. By taking the distribution in stock, rather than cash (no matter your tax bracket), you’d have made a killing… a 144% savings.

Of course, this strategy assumes you’re holding quality companies with a good chance of recovering.

Still – a great move, right?

Well, it may be too great… Here’s where the “slap” comes in!

A Democratic senator from Oregon, Ron Wyden, wants to pass legislation that would crack down on “unfair” tax strategies, like this one, that he says the “privileged” use to their advantage.

It seems like he’s focused on the heavy hitters of the world, like CEOs and other highly compensated corporate officers, who have millions in options and warrants – which can be valued well below the possible future market value. They use this same strategy to beat a lot in taxes.

They now have targets on their backs, and Mr. Wyden has them in his sights.

He wants to close down what he calls the “loophole” that gives an “unfair” advantage to the wealthy.

Really? Well I have news for Mr. Wyden: That would be true if wealthy folks were the only people holding securities in their IRAs… which would be absurd.

So if the downside soothsayers are right, and we get a near-term big correction in the market – and you need to get money out of your IRA – have your tax advisor take a look at this strategy.

See if it works for you. But do it quickly!

I hear that Wyden has a pretty good shot and may have other tricks up his sleeve.

Good investing,

Steve

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Source: Wealthy Retirement