Joe Biden Promises To End Traditional 401(k)-Style Retirement Savings Tax Benefits. What’s That Mean?

Forbes ^ | 8-25-20 | Elizabeth Bauer

[SJackson]

Round about a month ago, I took a closer look at Joe Biden’s retirement-related policy proposals, or, more specifically, those of the “Unity Task Force,” which had just released its final document.

One of the items in that document and on the Biden campaign website is a promise to “equalize the network of retirement saving tax breaks” — a proposal that generally translates to eliminating the tax advantages currently enjoyed by retirement savings accounts and replacing them with a “credit” or “match.” The idea is that the tax advantages, or “tax expenditures,” as they’re called, disproportionately accrue to relatively higher earners, and the hope of a change is to provide benefits in equal measure to all income groups.

But how this translates in practice is not clear. An article at Roll Call this morning picked up on the proposal, as did Courthouse News, but neither had more detail, referencing only a 2014 Urban Institute/Tax Policy Center proposal, which provided various hypothetical alternatives.

So what did that proposal suggest? It included a variety of options, including

Reducing total available pre-tax savings (employer and employee) from (at the time) $51,000 to only the lesser of $20,000 or 20% of pay; Expanding the currently relatively-small “Saver’s Credit” (equal to 50% of the first $2,000 in retirement savings, only for relatively lower earners, up to $$19,500 for singles, $39,000 for couples; and phasing out quickly, to 20%, 10%, and ultimately nothing for singles with $32,500/couples with $65,000 in income) to stay at 50% for higher earners and phase out in a much more gradual manner instead; or Wholly removing any tax benefit for retirement savings and provide a credit of 25% instead ...snip...

[ProtectOurFreedom]

"What's that mean?"

Somebody needs to ask that question? Sheesh.

So Harris / Biden will dust off this short form 1040...

[Red Badger]

So am I, If they seize my IRA (recently rolled over from a 401K) I will, well, I can’t say what I will do...........

[Lou L]

I'm pretty good at finances, but I don't understand what their goal is here (well, I have an idea) -- it seems as though they're looking to remove all incentives to having and contributing to saving plans such as the 401k. I think there might be a "gotcha" in there to remove employer contribution benefits, so it's entirely possible the Democrats want to not STEAL from the goose, but kill the goose outright.

With the elimination of the 401k (and I assume similar other types of plans), they can start going after all those 401k balances, probably...maybe offering to "manage" it for you.

[Red Badger]

Roths $$ have already been taxed................but not the interest.................

[rintintin]

Why is there no question about this at the debates?

Why didn’t Trump or Pence bring it up?

[WildHighlander57]

When can folks pull their money out without penalty?

[xkaydet65]

Wasn’t there talk during Barky’s 2nd term of replacing IRA and 401k with govt payouts like a second social security with the govt using the confiscated funds? That would have ended inherited IRAs and 401ks . A Taking bias defined by the Fifth amendment.

[JennysCool]

Any time you see a buzz phrase like “Unity Task Force,” be afraid. Be very afraid.

[chopperk]

Worst case scenario for the USA if Biden wins the presidency and the liberals will take over.
First deep recession if not a depression,,,,,other world economies to follow,,,,world wide collapse of the American Dollar as the World’s Reserve Currency and is replaced by the Chinese Renminbi. China is limited in choices to maintain leadership and the Renmindi as the Worlds Reserve currency since the American Taxpayer can no longer support China. The American Dollar will be worthless or similar to the Peso and the Libs will never be able to recover. Their only hope is a Socialist Government without the Constitution to attempt to correct the American lawless Society but will be fruitless and the USA will become a third world country.

[pfflier]

I am already planning ways to get my money out of the 401K and into my wallet before biden gets to it.

[cuban leaf]

and the tax deferral

---

Sure, as long as the government does not change the rules in the meantime and/or the tax rate isn’t higher. :)

[SaxxonWoods]

What’s that mean?

Nothing. When asked about it, he will say, “I never said I was going to do away with retirement accounts.”

He throws bones to the radicals and then denies it to the press. It’s not a new tactic. I’m sure we can all remember when Obama was against gay marriage, etc. and the Left knew better and elected him.

[plain talk]

“The only thing good about 401k’s is the matching funds from your employer.”

A Company match of 6% or so is definitely helpful but relatively small compared to the amount one should be saving for retirement. A person should probably be saving at least 20% if you wish to have a decent standard of living in retirement. If your Company provides a higher match than 6% that is even better.

The benefit of 401Ks is not being taxed on the front end which allows the account to compound and grow tax free. Of course you pay the taxes on the backend when you withdraw it. So there is no free ride on a 401K. But it is helpful way to save money that otherwise might just get pissed away.

401K’s represent a huge amount of money the dems want to tap in some way. I don’t see them confiscating it. They don’t have to. They will just change the rules and increasingly tax the crap out of it.

It is probably wise in your retirement years to pull out as much pre-tax savings as you can stand each year. Taxes have nowhere to go but up given the out of control spending by all the politicians in DC.

[semimojo]

We don't know the details of this proposal so we're going to assume it's one of the options from a what-if document from another organization from 7 years ago.

Makes sense.

[FewsOrange]

Here is the piece from the Biden website

"Equalizing the tax benefits of defined contribution plans. The current tax benefits for retirement savings are based on the concept of deferral, whereby savers get to exclude their retirement contributions from tax, see their savings grow tax free, and then pay taxes when they withdraw money from their account. This system provides upper-income families with a much stronger tax break for saving and a limited benefit for middle-class and other workers with lower earnings. The Biden Plan will equalize benefits across the income scale, so that low- and middle-income workers will also get a tax break when they put money away for retirement."

What that means is that instead of deducting your 401(k) contribution from your taxable income you will get a refundable tax credit instead.

[Noamie]

Anyone who thinks their 401k is a good investment has way too much trust in Democrats.

[A_Former_Democrat]

That’s just silly talk.

[day10]

NO way that I know of. It’s whether you want to take the hit or not.

[jdsteel]

I was going to reply to the original poster, but you brought up my point. That is absolutely correct. Everyone needs to revisit the “retirement task force”lwhich included Obama, Biden and Hillary Clinton along with others. Their plan was to carve out a portion of 401(k)s to have them go into an annuity contract that would pay out monthly guaranteed income at age 75. Of course, when asked what insurance company could handle all of those are new annuities the answer was the United States government would handle it with the issuance of special bonds. The money from those 401(k)s would, of course Cole right into the general fund to be spent by Democrats.

[HangnJudge]

If Biden wins, Capital Gains taxes go through the roof
Plan accordingly