Fiscal Cliff: Why Congress Might Have to Mess with the 401(k)

Time ^ | 11/29/12 | Dan Kadlec

[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 nation’s debt problems. We’re about to find out if those fears—persistent for decades—have 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.

[TurboZamboni]

Theresa Ghilarducci

[AngelesCrestHighway]

welcome to your Twilight Zone...

[ctdonath2]

The Left has gotten good at not attacking their targets head on.
In this case, they won’t tax 401ks directly, but instead will do something which will put a neutral third party at risk, compelled (”comply with regulations XYZ or get penalized out of business”) to perform the “tax” without the actual account owner having any choice in the matter.

[PeterPrinciple]

Even if they take over the retirement plans, just who exactly is going to buy all the stocks and bonds?

[EBH]

Shut mine all down and took the penalty in NOv. 2008, day after the election....

Fools I tell ya’, fools. Everyone saying they would never do this....

Look it is your money. They want to end it? The only thing you owe them is tax on that money. That was money you or your company put aside. That is YOUR money not the governments in any way shape or form.

[smoothsailing]

The government wants your money, all of it, now!

The fiscal cliff and tax hikes on the rich nonsense is a smoke screen for the wealth confiscation that is well under way.

[Orange1998]

"With a combined $10 trillion sitting in IRAs and 401(k) plans"

So 10 Trillion is sitting in accounts waiting for the owners to claim their money?

I seriously doubt ANYONE can produce 10 Trillion dollars in one swoop because it does not physically exist.

[SueRae]

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.

[PeterPrinciple]

and under current law never will be (taxed).

---

I am willing to be corrected but that is a lie.

[EBH]

This was floated by in 2007, 2008 already.

They have had 5 years at least to work on the legislation and propaganda to make this happen.

It is going to happen. I’d get out before they decide to freeze the 401k accounts. That is YOUR money.

[MrB]

She and Alan Colmes need to get together.

[MrB]

Very likely they’d shut down that possibility with no warning while they wrangled it out.

[TurboZamboni]

I’ve been thinking if Uncle Sham is bluffing, they win when you have most of the populace now with no savings and dependent on FedGuvInc in their old age.(No point in saving in a traditional bank account or CD since Uncle Sham is keeping interest rates artificially low.)

On the other hand,if rumors are fostered by the government to convince people to stop deposits and make early withdrawals to boost THIS YEARS’s taxable income, that buys them time to keep on spending ,wasting, and scheming.

[Orange1998]

"It is going to happen. I’d get out before they decide to freeze the 401k accounts".

NEVER in a Million Years. The results will make the Great Depression child play.

[alamogal]

If the trillions in 401k’s and ira’s comes out of the stock market..look out below..

[Ratman83]

They are giong to get us either way.

[Milton Miteybad]

From the article:

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.

To maintain this savings incentive the government “spends” $100 billion a year in the form of tax breaks to those who stash money in these kinds of accounts. Now, a new study suggests this tax incentive does little to change saving behavior. Some lawmakers, no doubt, are wondering: Why keep an expensive tax incentive that does not incent?

The portion in bold is just flat wrong. These are tax-deferred accounts, where current contributions are made with pre-tax dollars and are taxed at withdrawal, at the rate for that taxpayer at the time of withdrawal. The money will most certainly be taxed later on, even if it isn't being taxed now.

Moreover, the whole conclusion of the study quoted by this article is directly refuted by the article itself. Let's erroneously assume that the government actually "spends" $100 billion/year (a monumental misconception, to be certain) in deductions for contributions to these types of accounts, which have been around for 30 years or so. The aggregate deductions for retirement accounts obviously hasn't been $100 B/year from their inception to now...in the early years, whatever current revenue may have been forgone by the federal government was no doubt far less than $100 B/year. Yet, there is now a total of $10 trillion dollars held in these accounts today, which is $10 T in capital that would not have existed otherwise.

These accounts, contrary to the article's premise, have accumulated capital far faster and to a far greater extent than if the contributions had been taxed in the year they were made. The very existence of a capital pool in excess of $10 trillion that would not have existed but for the presence of the tax-deferred accounts undercuts the whole premise of the study.

Now, what I would deem to be a clear waste of federal money is any tax dollars thrown at the jacklegs who came to these erroneous conclusions.

[Mouton]

I love the smell of revolution in the morning, it smells like Victory.....sorry for the plagerism.

[GeronL]

here it comes

confiscation

and of course NO spending cuts

[EBH]

Obama Begins Push to Confiscate IRA’s & 401k’s
http://www.freerepublic.com/focus/news/2960535/posts?page=96