Congress takes aim at 401(k)s (to pay for mounting Federal deficit)

Bankrate.com ^ | 2011-06-03 | Jennie L. Phipps

[rabscuttle385]

Should Congress put limits or even completely do away with the tax incentives that make saving within a 401(k) or some other tax-advantaged retirement plan attractive in order to cut the deficit?

The Congressional Joint Committee on Taxation and the Treasury Department's Office of Tax Analysis conclude that these retirement planning programs will cost the federal government about $600 billion in lost revenue over the next five years.

Here's what they suggest instead:

• Bipartisan Policy Center Debt Reduction Task Force -- Maintain existing accounts but cap tax-preferred contributions to the lower of $20,000 or 20 percent of income.

• National Commission on Fiscal Responsibility and Reform -- Consolidate the various retirement accounts and cap tax-preferred contributions to the lower of $20,000 or 20 percent of income.

The American Society of Pension Professionals & Actuaries, or ASPPA, says the government's math is fuzzy because it doesn't accurately figure deferred revenue -- savers eventually take the money out and pay taxes on it. Based on its calculations, the government would only gain about 25 percent more in taxes and the price would be reduced income and security for people living in retirement.

A separate study by the Stanford University Graduate School of Business says that the introduction of 401(k)s has had an enormous impact on how people invest in stocks and bonds. At the end of World War II, individual citizens owned 90 percent of the stock market; by 2006, they owned only 30 percent. The other 70 percent was held by institutions, including mutual funds, insurance companies and pension funds.

Ilya Strebulaev, associate professor of finance and primary author of the study, recommends that tax reformers consider making the tax rate on capital gains equal to the tax rate on equities held in tax-advantaged accounts. Now, of course, the capital gains rate is 15 percent for most people -- less for low-income people, while the rate son equities in tax-advantaged accounts are the same as for ordinary income. This would level the playing field and potentially make it less attractive to hold stocks in a tax-advantaged accounts. He believes that among other things, holding stocks outside of institutional accounts would encourage individual investors to pay more attention to how their money is invested. "Institutional investors are very passive. They delegate their vote. It's not the best social outcome," Strebulaev says.

Strebulaev dismisses the idea of limiting the tax advantages of retirement accounts to increase revenue. "What I think what our research delivers is that all these small twists in taxation are very unlikely to work."

[Hayride]

Control/take your money, control/take your choices, control/take your freedom. Tick, tock, tick, tock. The plan is coming to fruition sooner than many think (if they’re thinking at all) so prepare as best you can.

[ntnychik]

No aisle-crossing on this, pubbies. I mean you, McLame, your pal Lindsay, the Maine twins, and any of their possible ilk.

[Jim 726]

This is why I think a Roth IRA is a dumb idea - because by the time you hit 70, they willl change the rules so they can tax you. May as well realize a tax deduction upfront.

[Gator113]

Don’t wait. Buy it, learn how to use it, keep it safely secured and hope you never have to use it.

[ebshumidors]

That’s the big pile of money.

[Skepolitic]

"Again the government believes that IT has a God Given right..."

Again the government believes that IT has a is God Given right.

Fixed it.

[Eva]

Don’t all spending and tax bills have to originate in the Congress? Don’t the Republicans have charge of the Congress at this time?

[bruinbirdman]

The Obammunist in his campaign website, long scrubbed, "Anyone rich enough to have their own retirement account should not be subsidized by taxpayers."

yitbos

[blueplum]

Note to congresscritters: keep your sticky paws out of my 401 and out of my mortgage deduction. Stop Spending!

[Skepolitic]

“Roth IRA is a dumb idea”

I more or less agree. Even if they don’t income tax Roth distributions, they could use them to reduce net Social Security income.

If one has a year with particularly low taxable income, partial Rothification worthwhile at a 15% rate though. Providing, of course, that one has sufficient non-retirement assets to pay the tax and won’t need the Rothified money for at least five years.

[BobP]

Don’t wait. Buy it, learn how to use it, keep it safely secured and hope you never have to use it.

--------------------------

Good advice for newbies.

It's all about punishing successful people. The left thinks profits are evil. Now the administration is castigating business because they are not investing money in this economy. With Obama declaring that businesses should not make money, what does he expect?

The administration floats trial balloons about nationalizing 401k accounts to help Social Security. What does Obama expect citizens to do when he is threatening their country and way of life?

Obama never intended to 'deliver.' Obama intended to redistribute wealth.

People won't invest, won't hire and won't spend because you don't know what this moron will do next.

There can be no doubt that what Obama seeks is to overthrow the Constitutional Republic that we have enjoyed for the past 230+ years.

Look at what we have become in 28 months.

He must be thrilled.

Countdown until Obama leaves Office: 595 days as of June 4, 2011.

  War With the American people

[bruinbirdman]

"They will do this, it is just a matter of when, not if...."

It was worth it to lifelong socialists to sacrifice their carreers, elected office, in order to nationalize health care.

Nationalizing retirement accounts will be a small step if they ever control three branches of government again.

Heck, one more socialist on the Supreme Court and the judiciary will do it for them.

yitbos

[ModelBreaker]

The Ruling Class has put itself in a box. Anything they do causes big problems. If they raise taxes to close the deficit, we go into a much bigger recession than we are in now and tax revenues go down. If they reduce spending, same result plus, they have a harder time buying campaign contributions and workers from power-broker groups like labor unions. If they reduce 401k incentives to close the deficit, they tank the market and start a bigger recession than we already have.

It all goes back to uncontrolled spending and excessive debt over many years.

[headstamp 2]

“....conclude that these retirement planning programs will cost the federal government about $600 billion in lost revenue over the next five years.”

It’s NOT your money you bloodsucking bast***s!

[cherry]

just do what I do....forget your 401...use the money to pay off your mortgage or bills...

[cherry]

the justification of taxing a Roth is beyond me....one gets no incentive or tax advantage from putting money away except it gains interest, etc...they can’t possibly justify taxing the principle...

[GnuHere]

I keep thinking they won’t stop with just the 401(k)’s; for real class warfare to break out, they’ll just start taxing overall assets/net worth to “redistribute”. That is, if anybody who has worked hard still has any assets to steal by that point.

[Lazlo in PA]

http://www.youtube.com/watch?v=dPmbT5XC-q0

[Personal Responsibility]

That large a pot of money is irresistable to politicians. They will eventually find a way to raid 401k’s. 403b’s might be safe given the population who fall into them tend to be big liberal democrat voters.

[Personal Responsibility]

conclude that these retirement planning programs will cost the federal government about $600 billion in lost revenue over the next five years

---

This is what it has come to: Money that the federal government has never had but is looking to find a way to grab. That is now considered a “cost”.

Completely amazing.