Skip to comments.Fiscal Cliff: Why Congress Might Have to Mess with the 401(k)
Posted on 11/29/2012 11:20:58 AM PST by Perdogg
One of the earliest fears about tax-favored savings accounts like IRAs and 401(k) plans was that when this pool of savings grew large enough Congress would not be able to resist tapping it to help solve the nations debt problems. Were about to find out if those fearspersistent for decadeshave been justified.
Everything including the sacred mortgage deduction is on the table as lawmakers wrestle with the fiscal cliff, a year-end avalanche of scheduled spending cuts and tax increases. With a combined $10 trillion sitting in IRAs and 401(k) plans, retirement accounts make a juicy target. Some of this money has never been taxed, and under current law never will be.
(Excerpt) Read more at business.time.com ...
Obama and his fellow socialists skate off scott free.
“Might Have to Mess with the 401(k)”
I reject their premise. They don’t “have to.” They created the problem on purpose. They knew they would have a big deficit and would use that a justification for seizing money from people who earned it legally.
Face it folks, we live in a communist dictatorship.
the problem in the USA is NOT a deficiency of taxes, taxation or regulation....
All I know is that it will sound like a xylophone falling down the stairs...
I crack myself up...
I had a great 401(k), but one day on a fishing trip my canoe turned over and....
Eventually Obama will have to dip into your savings accounts when he runs out of money from the “evil rich.”
If much of the 401(k)value is tied up in corporate stocks, then seizing retirement accounts is really seizing the private sector.
How else would one characterize the government mandated selloff of ccorporate stocks?
This is straight out of the Kirchner’s Argentine formula.
Thieves have a hard time resisting other peoples money. So I guess I can’t blame Congress. They emptied the treasury, so there is not much left to fight over now.
Well, when we are all living in mud huts holding the barbarians off with a stick, I am sure they will say a prayer for us from the Riveria or the Bahamas, or where every they put their personal stash.
Cause Congress does not do 401k’s.
Hand it over, komrad. The only retirement under communism exists in a mass grave.
Sabatage, everything Federal. It would be like a Guerrilla War, the Feds cant be everywhere, but individual people can. What if Hackers shut down the EBT card system? Power Lines to IRS buildings happen to go down. People aren’t killed, that would be bad press, but the average Joe wouldn’t care if a building or two happened to burn down. If something like this spread throughout the country it would be chaos. All this is just hypothetical of coarse, I would never advocate such a thing, that would be illegal.
1) 401Ks are tax free, more specifically income tax free (not true)
2) Only the rich use these (not true)
3) 401Ks dont encourage retirement savings (not true)
4) Getting rid of these tax deductions(???) would be popular (not true) now that everyone wants to soak the rich.
You see 401Ks are NOT tax free as Time claims they are, they are tax defered. We pay the tax when we withdraw the money in retirement.
Time would be useful for cleaning up after doing the morning business, that is aabout it
Notice that there was no word about tapping into pensions . . . make the 401(K) less valuable and make it a lesser alternative to a union pension plan! Voila! Another reason to spread union membership.
Sooner or later the left will court violence. And it will be responded to.
“I would think a lot of people would quit en masse and take the freaking penalty just to take their $$$ out of 401Ks. The bank of Stearns and Foster is going to do well in these times”.
Who’s to say the RAT scum would not make it retroactive.
Can you imagine the scramble for gold and other hard assets such as guns and land (in nations that still respect private property rights)? Wow... There will literally be a run on the banks like nothing we have ever seen. I will camp out overnight to be near the front of the line.
I’d rather go to Atlantic City and place it all on red than flush a dime of it down the corrupt government toilet.
Nonetheless, Wile E. Coyote always came back to wreak more havoc.
As will our polypragmatons.
Often wondered why we can't RENT A MOB to protest for our side. I don't think those people really care who they take money from, do they?
“The truth is, in order to get things like universal healthcare and a revamped education system then someone is going to have to give up a piece of their pie so that someone else can have more.” The First Mooch
There is one category of assets/funds in IRA's or 401(k)'s that meet this description: The ROI in Roth 401(k) or Roth IRA. I believe that's what the article is referring to.
An example: you contribute $5,000 to a Roth IRA this year (that's the maximum, if you are under 50). You will have paid income taxes on that contribution, because only earned income is eligible.
However, if you don't withdraw those funds for 20 years, and you get an average ROI of 7% per year (which isn't unreasonable), that original contribution will grow to nearly $20,000.
On withdrawal from the Roth IRA, you won't pay income taxes on any of it, as long as you don't withdraw it before the year you turn 59-1/2. That means that nearly $15,000 is never subject to income tax. Furthermore, there is no minimum required distribution, so you don't have to withdraw from it at all. Then, you can bequeath your Roth IRA to a spouse, child, grandchild, etc. If it is someone besides your spouse, they will have to start withdrawing from it within 5 years after your death, but the minimum required distribution rules apply and they can spread it over their entire remaining lifetime. And except for your original contributions, it will all be tax-free, aside from any estate tax that may have been assessed.
10 trillion can become 1 trillion real fast if this materializes. I'd rather have 10 cents on the dollar than zero cents.
I think the WAR has begun....just been skirmishes here and there so far....real battles seem to be on the horizon.
They are only wanting to get an early gift for Baraka Claus by having you pay the taxes early before you retire and then treating it like a Roth IRA. The accounts are eventually taxed but since you aren’t earning high wages, you are in a smaller bracket.
I remember when such talk was crazy....
It will collapse the banks & render them insolvent.
It will collapse the stock market and the DOW will be less than 1000.
That will collapse many companies, which have large numbers of stocks in the public domain.
Exactly the chaotic result Obama is aiming for.
The most I ever made in one calendar year was just over $62,000 GROSS.
I benefited every year from the mortgage deduction, and would still be doing so-—if I earned enough money to qualify to even file a return—and if I didn’t already OWN my house, free & clear. I gave up a log house on acreage which I loved to have the funds to buy free & clear in a smaller house on similar acreage in a more rural area. I miss that log house, tho. IF I ever have real money again, I will look to buy/build another log house on even larger acreage.
It has? Not that I've noticed. Who will sound the alarm for the real Happening?
Or conversely, if the Feds take control of the funds and become the #1 stockholder in any corporation of record, they’ll have near total and absolute power to get their way.
ping for tonight
You “own” a house? Says what? That piece of paper on file down at the county clerk’s office?
If they can expropriate 401k’s or IRA’s, they can disappear that deed on file that is “proof” of your ownership.
“and found that every dollar that government spent on tax breaks increased total savings by about one penny.”
Do they even read the propaganda they write?
If I get a “tax break” on money I put into a 401K, it is by virtue of money that is removed from my taxable income. If I put $1000 into the IRA, I pay on $1000 less taxable income. If I’m in a 15% tax bracket, they “spent” $150 and “total savings” increased by $1000.
But the government didn’t “spend” squat, they just didn’t get their hands on a small amount of MY money, YET.
Read the last two paragraphs of the article:
So hold on to your wallet. Congress has many options when it comes to tapping this vast reservoir. It could eliminate the deduction altogether or just for top earners, further restrict the amount that is deductible (currently $17,500; for those over 50, $23,000), start taxing retirement savings growth, or take back the part that has grown tax-free.
In the throes of a retirement savings crisis, none of these options is appealing. But that last one is most troublesome. At stake is any savings that has accrued tax-free in a Roth IRA. Tax-deferred growth could be a target too if you find yourself in a lower tax bracket in retirement. There is no discernible momentum behind such measures. But a retroactive tax on this sheltered income has been a worry from the start. And now these accounts have a meaningful totaland everything is on the table.
However, as I've posted elsewhere, I don't think Congress will touch prior contributions. The worst they could do without setting off a panic sell-off is change the rules for future contributions.
And I hope you also noticed another sentence in the last paragraph. I'm going to make it as obvious as possible for all the Chicken Little's:
NOBODY SHOULD PANIC ON THIS AND DO STUPID THINGS LIKE IMMEDIATELY CASHING IN ALL THEIR IRAS & 401KSAND TAKING THE IMMEDIATE & LARGE TAX HIT. If you are in a position to do so, you can begin (possibly gradually) to move any existing retirement funds from traditional IRAs to Roth IRAs. If your tax & financial situation allows it, try to put any new IRA contributions directly into Roth IRAs. If your 401K plan has a Roth 401K component, go that route for new contributions or as big of a percentage of your new contributions as you can. If your 401K plan doesnt currently have a Roth component, lobby your employer to have one establishedhe/she could benefit also.
55 posted on Sat Nov 17 2012 06:55:26 GMT-0600 (CST) by House Atreides [ Post Reply | Private Reply | To 1 | View Replies | Report Abuse]”
What about the above advice from House Atreides?
And notice the article being commented on (and other related articles) seems to all go back to the “seniors council”, wherever they are.
(Seems like another “cottage industry” is springing up, this time raking in donations to keep 0 from messing with the retirement accounts.)
“and under current law never will be (taxed).
I am willing to be corrected but that is a lie.”
I think at some of the lower income levels, that was the case for IRAs. But it doesn’t matter in the end, for the operative phrase is “current law”. They can change the law tomorrow.
“I would think a lot of people would quit en masse and take the freaking penalty just to take their $$$ out of 401Ks.”
Count me in. The government can have their 35-40% of my IRA - but I GET THE REST, and they will never get to touch that.
Here is one rule worth examining if you are in the right situation. At 57, I am. From Fox business..
Boomer: At age 55, what does separation of service exception for early withdrawals mean?
Libbe: The separation of service exception for early withdrawals allows for early withdrawals from ERISA qualified employer sponsored plans without a 10% federal tax penalty for early withdrawals if you are age 55 or older when you leave the employer. IRAs do not qualify for this separation from service exception so the money would have to stay in the employer plan. Some exceptions also exist to the 10% federal tax penalty for early withdrawals with 72(t) distributions (substantially equal and periodic payments) if taken from an ERISA qualified plan or from an IRA
That is too smart & Constitutional for Washington D.C. A truly flat tax would prohibit them from welding much of their extra-constitutional powers designed to enable them to try and control society and more importantly their own reelection.
Most tax exemptions are ment to buy off constitutions and encourage behavioral favorable to a politician’s constituency and/or ideology.
There is a good reason this vast and easily abused power interestingly absence from that 11 page document, much as it conflicts with whole idea of there being Equality under the law.