Posted on 10/12/2011 4:26:54 PM PDT by Kaslin
s your 401(k) safe from the tax man? That's a question that might be worth asking, as the congressional "supercommittee" scrambles to find $1.5 trillion in additional deficit cuts.
In September, the Senate Finance Committee held a little-noticed hearing that explored changes to retirement plans principally employer-sponsored 401(k)s that would in one way or another cut their tax deductions.
The tax breaks' size makes them a tempting target for lawmakers. According to the White House budget office, tax exemptions for 401(k)s and IRAs will "cost" the government more than $436 billion over the next five years.
Senate Finance Committee Chairman Max Baucus, D-Mont., complained that "in spite of the tremendous tax preferences," Americans aren't saving nearly enough for retirement.
Critics say the existing system benefits mostly the rich. The liberal-leaning Tax Policy Center calculates that 80% of these tax "expenditures" go to the top 20% of earners. Such people "would almost certainly save for retirement even without tax incentives," said Karen Friedman, policy director at the Pension Rights Center.
But Judy Miller of the American Society of Pension Professionals and Actuaries argues that the deduction's cost is wildly exaggerated. Adjust for the taxes paid when retirees withdraw money and the cost is cut in half.
And, she says, the break is more progressive than some allege. Among other things, high earners who get a bigger tax break going in end up paying more in taxes when they take the money out.
(Excerpt) Read more at investors.com ...
I'm with you. Why should debt be encouraged, other than to make debt slaves out of as many as possible?
I'm also tired of government bureaucrats trying to herd everyone to their predetermined correct behavior. That's really all deductions, credits, and incentives do.
They don’t have to take your 401 K they will just change your tax rate at withdrawl
They are not that dumb to outright take it...
“Are Democrats Eyeing 401(k)s, IRAs for Tax Hit?”
No; I think it’s worse than that. They’ve been talking about confiscating IRAs, 401(k)s, etc., and then redistributing to the masses. I worked in Human Resources Benefits before retiring in ‘08, and that was a topic of conversation around that time. They’re basically just going to take the money — and then give it to the losers.
in NYS and I imagine other states retirees DO NOT PAY STATE INCOME TAX....now we peasants without the cushy govt pensions are going to be PUNISHED because our only retirement is what we have personally SAVED!
IRAs and 401Ks became popular in the 1980s when Congress realized that SS would not pay everything due to the Baby Boomers.
Also, this made Wall Street happy because there would be a monthly supply of employer and employee contributions that would be invested in all kinds of investment vehicles.
The government was happy because they would get to tax the principal and the increase rather than just the value of the contribution going in, when cash out time came.
And everyone loved the penalty of 10%—the governemnt because if you cashed in early, that’s a windfall tax to them, and Wall st., becasue most people would rather not lose an additional 10%, so there is an incentive to keep the money locked in.
What could possibly go wrong?
Then you would be very happy under the 9-9-9 plan then.
If they try, Boston Tea Party would be a child’s play compared with what they will face.
If it is a tax deferred 401K, they pay taxes. If it is a Roth 401K then they don't. But they have to withdraw the money withinn 5 years if my memory serves me correctly..
This could quickly become a middle class vice - means testing Social Security excludes those with any savings and likely property (like Medicaid today for nursing home coverage) while limiting contributions makes it hard for those except the top 5% to save much.
Little to no SS, little to no private savings, totally abandoned to the Alpo diet.
IRA’s and 401k are Tax Defered, taxes are taken out later after years of gains - the government will loose future revenues.
I wouldn’t be surprised if they did.
Eff the saving class once again.
Done - and haven't looked back. Also - does anyone know what the tax rate will be on those withdrawals ten years from now? Nope.
Here is where we might draw the Line.
Well they’ve taken our free speech, our right to govern, our healthcare - what’s to stop them from taking our retirements?
However....if you are still working past 70,5 and contributing to your company run 401k then.....
...there is no forced withdrawal until you stop working (ie drop dead for those in Rio Vista)
IRAs and 401ks cost the government tax revenue in a few ways:
The investment income is tax deferred. Suppose you had income of 10,000 in 2011, paid 20% tax on it, leaving you with 8,000. In 2012, your 8,000 earned 10%, or 800, so you paid 20% tax = 160, leaving you with 8,640
Now suppose you put the same 10,000 into a 401k in 2011, earned the same 10% in 2012, so you’re up to 11,000, then paid the same 20% tax, so you end up with 8,800, which is 160 more than without the 401k and equal to the tax you paid in 2012. Do this over a career and it makes a big difference.
I assumed the tax rate was constant at 20% here. If it actually goes down because you’re in a lower tax bracket, you come out ahead. If you think rates are going down, do the pre-tax 401k or IRA. If you think rates are going up, do the Roth after tax. If taxpayers are rational, this should cost the feds a bit.
Third, the feds look at a ten year window when scoring the tax revenue. Even if you’re 60 now, you can put off starting the tax until you’re 70.5, so it looks like there’s no tax paid.
On the other hand, 401ks can increase the tax revenue. Many people take the money out prematurely, before they’re 59.5. They get hit with a 10% penalty, on top of the income tax.
Also, when people take the money out, there’s 20% withholding at the time of the distribution, which tends to speed up the tax paid (sort of gives them an extra year’s tax on the 10 year schedule.)
My money says these thieving chchchchcch0ck suckers go for outright confiscation within the next few years. This is why mine is now all in cash and i’m withdrawing it. Better a rape than a murder.
Excellent, you get it. Now I want you to think about this. When they do these things, the taxes and fees and all the claims against YOUR money are prolly gonna be retroactive so I'm getting mine out NOW, before it's likely that they pass the law. Dunno yet where the hell I'm going to put all the money because I dont believe in the stock market as it exists any more.
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