Posted on 10/21/2017 6:37:10 PM PDT by Mariner
Wall Street pushed back hard on Friday against a report that congressional Republicans are weighing a plan to severely limit the amount of money Americans can contribute to their 401(k)s.
The Capitol Hill lawmakers, searching for ways to pay for President Trump’s broad proposed tax cuts, are eyeing a $2,400 cap on pre-tax contributions to 401(k) plans, used by millions of US workers to save for retirement.
Currently, the pre-tax limit for such contributions is $18,000 a year.
Contributions to 401(k)s are tax-deferred, which means that the government won’t be able to get its cut until retirees start withdrawing money from those accounts — which they must do by age 70¹/₂.
As the number of US workers covered by pension plans shrinks, 401(k) plans are becoming more widely used — and necessary.
There is roughly $4.7 trillion in 401(k) plans in the US.
(Excerpt) Read more at nypost.com ...
Doing a “backdoor ROTH IRA” instead of a “traditional IRA”, the high earner would still not get a tax deduction for the contribution at the time of contribution, just like if he/she has gone the traditional IRA route instead. However, unlike the traditional IRA, NONE of the dividends and capital gains accumulated in the Roth IRA (as well as the contributed amounts) are taxable in any way.
Google “backdoor Roth IRA” for more information. Why more high earners don’t do this is beyond me— its benefits are a “no-brainer”, IMHO.
Mandatory 20% federal withholding on any 401k withdrawal friend. The government is already 1 step ahead of you. They might not get all their taxes due, but they will get 20% upfront.
Is that what you did/are doing?
No I originally didn’t understand your post.
But here’s math you don’t understand-how do you get the $350k into a ROTH?
At $5500/year max contribution, it’ll take you 66 years to get $350,000 in one. You could roll it over from a traditional 401(k), but at a $18k contribution limit, it’ll take 19 years to amass that much.
So you’re planning on someone working at least 60 years and starting off earning enough to put in a maximum contribution immediately.
Seems fanciful and only for the sake of argument.
If you look at the stats, those who need to save, don't do so. Our retirement is modest but we are in the top 1% of the general populace as far as what we amassed (which tells me how screwed up the majority really is when it comes to fiscal responsibility).
Then, a lot of folks who do save, don't take in to account how taking money out of an IRA affects their taxes.
To me, the best all-round method would be to have IRAs all use already-taxed dollars and then be allowed to grow with tax-free interest so it would be as simple and clean to take some out as from a checking/savings account.
So many "tax breaks" out there to try to "nudge" people into doing things that is has become a real mess.
I suspect many people that are in the 15% tax bracket before making contributions to deferred accounts probably don’t have much to contribute after expenses. Most people in this category probably don’t have enough money leftover to fully fund an IRA or Roth IRA
I'm not very thrilled with it either.
I don’t know. Maybe we could cut Welfare and save some money.
In my eyes the government already reneged when they moved my age to collect from 65 to 67. You may be fine with waiting until 74, but you may feel differently if you have to work your arse off at 68.
I’d just as soon have them keep their money down the road, and let me keep my money now.
No, I said the people that ARE irresponsible end up with our money, while the government that stole it makes it more and more difficult for us to get it. Be as responsible as you’d like; now you know the government has little intention of giving you back any of your SS money (that was deducted from your check for nearly half a century) because your responsible behavior left you in a position where THE GOVERNMENT DECIDED YOU WEREN’T ENTITLED TO GET IT BACK.
In a nutshell, I described how we’re just giving “retirement welfare” to people who didn’t save.
You are correct...unless you leave a job, in which case you get 100% of the 401K and have 60 days to roll it over. If it starts looking like the government will seize 401ks, I'll resign, and hide my 401K money. When the government notices I never rolled over my 401K, they can bill me for the 20% they didn't withhold. I've worked out payment plans with the IRS before. You can arrange to pay very little per month at an interest rate as low as 4%.
Great factoid! Had no idea about that loophole. Thank you!
The real problem is that the Nanny State has conditioned folks to think they can spend all they have, even on crap they don't need, and Uncle Sugar will provide the safety net - at the expense of those who act responsibly.
I do know our congress, that is why I am screaming. I realize they are corrupt and sleazy. I also know that nothing will be done except spend more money.
“And you want tax payers in the Red states (who, for most, don’t have high deductions for state & local taxes)”
That’s the basis of the disconnect on this issue.
The SALT deductions are taken in every state in the Union. In fact, South Carolina has the highest number per capita, with Texas the 3rd overall net.
EVERYONE who itemizes takes them.
Excise taxes on the car or boat, property taxes, the local school bond and state SALES taxes all being deducted, in addition to those that opt to take the state income tax deduction.
Additionally, most of these red states are already being subsidized, to an extent, by the CA taxpayers. We receive .78 in services for every 1.0 sent to DC. That very same state of South Carolina receives 14.0 for every 1.0 they send in.
Who is subsidizing whom?
That is one reason it is been hard to get rid of Obamacare. Several polls give it a ~50% favorability rating among the public. Considering somewhere around 50% of people live paycheck to paycheck the polls seem believable.
Are you a government employee by any chance?
I can’t say I take pleasure in the SALT deductions, but I think they’re necessary to help restrain big government at the state level. Compensation can be in the form of extending the lowest rate to all income taxed by FICA, while adding back the personal exemptions.
I would also get rid of the mortgage interest deduction, in return for eliminating all federal taxes on interest income. That would stop renters from effectively cross-subsidizing homeowners and would incentivize people to save money.
HOWEVER, I am totally against the notion of “paying for tax cuts,” since that presumes that our money is the government’s to spend as they see fit. I am totally against lowering the 401(k) tax-free limit, as our willingness to save for retirement seems to be abysmal as it is.
Further compensation for being rid of SALT and MID is to simply eliminate the 3rd, 4th and 5th brackets, leaving the remaining rates at this time to be 12 and 25 percent.
Full disclosure: I currently benefit from both the mortgage interest and SALT deductions.
SALT deductions = SALT elimination in this case.
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