They are going to find a way to tax the tax-free income that was promised when 401ks & IRAS were set-up. Bet on it. There’s tens of billions of dollars sitting around in these accounts as the baby-boomers age. Expect the tax grab once Hillary steamrolls the Loser Jeb or fat-boy Christie in 2016. God help us all.
I've been in 401k (and now converted to IRA in retirement) since they initiated in the early 80s. I don't remember any promise that they were tax-free. They have always been tax-deferred.
The money in most 401k’s and IRAs is already taxable when you start to withdraw it (and the govt forces you to withdraw it in pieces via RMDs).
” tens of billions of dollars sitting around in these accounts”
Actually, it’s trillions, which is why Obama is so eager to steal them. Tens of billions wouldn’t really help much. And the real advantage of stealing IRA money is that it affects mostly folks that didn’t vote for Obama and would never vote for another one like him anyway. Stealing IRA money is just another form of “redistribution”.
Forget when or where I first heard this, but a point was made that the value of all IRAs and 401ks combined equals roughly the size of the national debt excepting unfunded/underfunded entitlement programs. At some point in the very near future there will be an economic crisis that qualifies as a national emergency where it’ll be “Buh bye 401k and your IRA.” However, neither will “really, really” be gone in the sense that they’re...um, never coming back gone because of the IOU you’ll get along with assurances that every nationalized asset will be responsibly and competently managed. Indeed.
It gets even better, though, because profits that banks now earn through managing all those assets will be lost. So what to do, what to do, think, think, think.
Well, the solution’s already been thunk, thunk, thunk. In fact, it was taken out for a test drive in Cyprus where it worked out quite well — for the bankers, who found it convenient, efficient, and, interestingly, lawful to simply announce that henceforth all former depositors shall now be referred to as creditors with all the rights — and risks — associated with that relationship. (Psst, it’s always been this way.) Banks don’t store money so there’s no such thing as a depositor. What banks do do (stet) is manage the collective monetary instruments of their customer-creditors, hopefully with a return on the investments and loans made from its C-Suites. Incompetence isn’t illegal, but the potential for significant losses at any bank deserves the turning of a few rocks simply because stupidity doesn’t scatter.
It’s inevitable that Cyprus Haircut’s will soon become a worldwide rage.
There is no tax free income in a regular 401(k) or traditional IRA. You don't pay taxes on the contributions, but you pay taxes on ALL withdrawals, at the time that you withdraw it. So, that taxes both contributions (belatedly) and return on investment.
Roth IRA's and Roth 401(k)'s have tax free income. You pay taxes on the contributions at the time they are made, but all withdrawals are tax-free: including any return on investment after you make the contributions.
I can see them changing the rules to limit or eliminate additional contributions to Roth accounts. But, I think they would have a fight on their hands if they tried to change the rules on withdrawals, retroactively.
At the end of 2012, there was about $5.1 trillion in 401(k)'s and 403(b)'s, and $5.4 trillion in IRAs. 17% of households had a Roth IRA, while 32% had a traditional IRA. But, since Roth IRA's are newer, the average balance was $20,000, while the average balance for traditional IRA's was $42,500.