Posted on 05/20/2011 9:28:19 AM PDT by Libloather
Broken Piggy Bank: 'Leaky' 401(k)s Worry Congress
By ALAN FARNHAM
May 20, 2011
Americans in record numbers are raiding their 401(k)s, depleting their retirement savings to compensate for paychecks and mortgage equity lost to the recession. As employers and savings plan providers struggle to stem the outflow of money, two senators have introduced legislation that would make it both harder for employees to dip into company-sponsored retirement savings and easier to repay their borrowings.
The SEAL Act (Savings Enhancement by Alleviating leakage in 401(k) Savings) introduced by Sens. Herb Kohl, D-Wis., and Mike Enzi, R-Wyo., would reduce to three the number of loans an employee could take against a 401(k). Savers currently can take as many loans as they think they can handle -- or as many as their employer may permit.
The bill would ban products that promote savings depletion, such as debit cards linked to 401(k)s, and it would make it easier for consumers to repay monies borrowed. According to a new study by consultants Aon Hewitt, some 28 percent of active participants in 401(k) plans had an outstanding loan in 2010, up from 22 percent in 2005.
(Excerpt) Read more at abcnews.go.com ...
I’m not sure I understand the point of this bill. Seems like they would WANT people to cash out their 401k’s to generate new tax revenue. Hell, if they got rid of the penalty altogether they’d see a huge rise in tax revenue. It’s our money we should get to decide when we pay the tax and what we do with it afterward.
What the government is worried about is individuals will raid their ‘piggy banks’ before the government has a chance to do just that to pay for its excessive spending.
I think he talking about a 72T plan. They can be complex, and should only be done with proper advice.
Yes, by all means, take loans out on the 401k before money in them is not worth anything. Worst you have to do is pay back in inflated dollars.
Yes it’s a Roth.
Just an interim step to protect the money until they can give you the option of keeping your 401(k) or keeping Social Security.
Even then unless it was a Roth 401k you would have to pay taxes on the whole amount just to put it into the Roth.
The must be rare too. While I’m not a tax person I am licensed and have never heard of such a thing.
Except that inflation generally leads to higher equity prices and a loan would make you lose out on all that growth.
Negative. YOu can’t take 401k money and just put it into a Roth.. you must pay taxes on it first. If you had a large sum in your 401k than that’s going to be an awfully large tax it to convert all of it just so you wouldn’t have to pay the penalty.
I like the way you think.
People with depleted IRAs and 401ks, etc., will mess up the scumbag politicians' plans to "means test" so-shecurity.
It likely never occurred to these Washington Brain Trusts that the reason people are “raiding’ their own money is precisely because the Brain Trusts seem to think it’s their job to control how much of our money we can have.
Beltway Disease strikes again.
Ok..whatever...I’ve only done it three times in the last decade and paid NO PENALTY WHAT SO EVER.
And you are trying to tell me something I’ve done three times hasnt happend...
Funny stuff....
I rolled my pension to a roth....no penalty...no taxes....100% roll over....
(I can only do this under our current rules if I have been laid off more than 6 months...)
I then had them cut me a check out of the roth for the money I needed...
At the end of the year I CLAIM EXACTLY EVERTHING I’VE DONE and pay the standard income rate for my bracket on any withdrawals I’ve made.....
I Get a 1099-r for the roll over to the roth...and a 1099-r for any withdrawal from the roth.
You want the number of my investment guy?
Or perhaps the person who double checks my taxes for me?
As I recall..I even had a phone audit one of those years...and it was over 200 bucks I got paid to attend a class required for my state licensing...the IRS said it was self employment...even though I’m not self employed...
My return was all fine except that I had to pay self employment tax on the 200 bucks and all was good...
We went through my return line by line...I have rental property as well...and I claim a TON of unreembursed employee expenses...mileage on my truck, tools, work gear, lunches, tolls, union dues and license fees...I also have a vacation property as a second home...
I do my own taxes...as I wont sign my name to anything I dont have a direct hand in........but I do have them checked by a tax professional...
My returns are always conservative...there are a few things I could legally claim that I do not.......meaning if I am ever pulled for a full audit...they will actually owe me money when I walk out...
As a point of reference.....the year I took a full 38 grand out of my roth, after a 100% rollover, and paid off all my credit cards, my truck, a5 grand my mom loaned me, and a few other outstanding debts....(knowing I was going to be laid off for a while yet)
I owed the feds exactly 3600 bucks......I cut them a check for it...
As another point of reference...
I have a high school education.
If I could figure it out...why cant you?
Do you do your own taxes?
If not...why not?
Instead, the tax laws should be changed so that they are not necessary.
“Except that inflation generally leads to higher equity prices and a loan would make you lose out on all that growth.”
May look good on paper...
Inflation (inflated pricing) doesn’t mean equities are rising in value. Higher prices in equities means they are trying to keep pace (ahead) of inflation.
True that corporate dividends and corporate bonds will yield higher than government bonds but when inflation is running 10% or more, 7% or 8% (corporate returns) looks better than 1% or 2% (government returns) neither are keeping up with real inflation.
Commodities sector will probably be a good safe haven area, certainly not holding cash.
You are going to get creamed. You can no roll pre-tax dollars into an after-tax account without having to pay taxes, no if’s or but’s about it. I hope your accountant is going to pay tax bill when you get audited.
After reading your post a 2nd time I have no doubt that you don’t understand the difference between pre-tax accounts and after tax accounts, but none the less you claimed to have paid taxes aon your withdrawals when you said “pay the standard income rate for my bracket on any withdrawals” but you contradicted yourself a few lines earlier when you said “I rolled my pension to a roth..no peanlty... no taxes....100% roll over.”
So you didn’t pay taxes before you did. sounds alot like John Kerry.
6 trillion is sitting in 401k/IRA money and the end game is to loot that money, they can‘t allow it to be depleted to buy physical gold or some other hard asset.
You have to break a few eggs to make an omelet. You have to break a few skulls to make a utopia.
After reading your post a 2nd time I have no doubt that you don’t understand the difference between pre-tax accounts and after tax accounts, but none the less you claimed to have paid taxes aon your withdrawals when you said “pay the standard income rate for my bracket on any withdrawals” but you contradicted yourself a few lines earlier when you said “I rolled my pension to a roth..no peanlty... no taxes....100% roll over.”
Here’s a good primer on EWP’s from Roth IRA’s...
http://www.fool.com/money/allaboutiras/allaboutiras07.htm
One of the senarios listed is very simular to mine...
Perhaps the light bulb will go on over your head...and you will realise you made several false assumtions.
Figure it out for yourself....or dont...
Go ahead and pay that penalty....No skin off my nose...
This would be the part of the conversation that’s called “the end”....because I’m not going to further argue my personal finances with someone on the internet who “feels like a nut”...
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