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Are 401k's under attack?
Old 11-27-2012, 05:00 PM   #1
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Are 401k's under attack?

The attached article indicates 401k accounts may be under attack, but neither this article nor the "Save the 401k" website it refers to mentions what specific changes are being contemplated.

Amid Tax Talks, a Cry of 'Save My 401(k)!' - US Business News - CNBC
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Old 11-27-2012, 05:04 PM   #2
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NO specifics.
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Old 11-27-2012, 05:30 PM   #3
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Originally Posted by AWeinel
NO specifics.
Those crazy pension professionals and actuaries, always stirring up drama.
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Old 11-27-2012, 07:04 PM   #4
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The concern is the amount of taxes deferred on 401ks this bothers some folks who can't see tommorrow. If you do a 401k you just postpone the tax until you withdraw. Now I could see saying that the funds must be withdrawn according to the original onwers rmd schedule if retired (no one makes you spend what is left after taxes anyway). If one wants immediate revenue that bad make all 401ks roths. (then the feds get the money now not later).
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Old 11-27-2012, 08:51 PM   #5
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I haven't seen or heard anything specific targeting 401Ks. On the other hand, if (as part of a larger tax reform), they grandfathered present IRAs/401Ks but entirely eliminated deductability for new money that would be okay. Just, as part of the whole reform, reduce rates as well so that the whole thing is revenue neutral. I suppose there's no reason in particular that money earned but then put into a retirement account should receive different tax treatment than money spent on other stuff.
Reduce the complexity and the "do this and you'll get a special deal" giveaways in the tax code--including 401Ks, IRAs, the very high standard deduction and personal exemption, etc. Income is income.
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Old 11-27-2012, 11:14 PM   #6
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Yes, 401k plans are under attack, but probably not in any of the ways this website suggests. There are no serious proposals to lower contribution limits. There is a possible (long shot) proposal to limit individual tax deductions to a fixed amount per year, though none of them currently include 401k contributions in that limit, so probably not applicable.

The possible serious threat is from groups that want greater annuitization of retirement savings, either by mandating a minimum amount of annuity as a required distribution option or more radically by replacing the 401k with a national unified retirement savings program that would only provide annuitization. The possibility of mandating an annuity option is reasonably possible. The idea of requiring a minimum amount of annuitization is less likely. The idea of replacing 401k plans wholesale is rather unlikely. But when it's a political discussion, anything can happen so you never know.
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Old 11-28-2012, 09:54 AM   #7
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The sweetheart deal on 401k accounts has already changed dramatically, in that many companies have eliminated the "match".

Certainly I cringe when government uses slight-of-hand, i.e. lotteries and such, because it tends to obscure just how much it costs to do what the government does. Giving retirement accounts deferred tax treatment is not terribly dubious, IMHO, but for your "average" tax filer, seems better to have a "you earned X, you owe Y" system, without all the associated crapola, requiring lawyers and accountants et al...
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Old 11-28-2012, 11:40 AM   #8
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The possible serious threat is from groups that want greater annuitization of retirement savings, either by mandating a minimum amount of annuity as a required distribution option or more radically by replacing the 401k with a national unified retirement savings program that would only provide annuitization. The possibility of mandating an annuity option is reasonably possible. The idea of requiring a minimum amount of annuitization is less likely. The idea of replacing 401k plans wholesale is rather unlikely. But when it's a political discussion, anything can happen so you never know.
Virtually all 401k accounts eventually become rollover IRAs. So via RMDs a form of forced annuitization is already present.

The sad truth is that this is indeed a political discussion, so anything is possible.

The even sadder truth is that no matter what system of taxation is put in place, government spending will always expand to consume all of it. And then some.
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Old 11-28-2012, 12:57 PM   #9
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Virtually all 401k accounts eventually become rollover IRAs. So via RMDs a form of forced annuitization is already present.

The sad truth is that this is indeed a political discussion, so anything is possible.

The even sadder truth is that no matter what system of taxation is put in place, government spending will always expand to consume all of it. And then some.
The issue is that today if a 401k or IRA is inherited the clock on RMDs is reset with the new RMD based upon the beneficiaries age. I see it changing where the founder of the 401ks age based RMD must be used.
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Old 11-28-2012, 03:48 PM   #10
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Been under attack for years. Just not a particularly compelling or scary attack. Google Teresa Ghilarducci (or search this forum) to see the usual villian. Also, in some of the charts of tax expenditures it is usually listed.

I put its repeal as bit more likely than the ones who want to tax the imputed rent from owning our own home, or not very likely.

It won't be describe as a repeal of the 401(k), but the biggest threat is a VAT lowering the purchasing power of our future dollars.
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Old 11-28-2012, 07:38 PM   #11
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It won't be describe as a repeal of the 401(k), but the biggest threat is a VAT lowering the purchasing power of our future dollars.
I've always been highly skeptical of Roth IRAs for exactly this reason. As the labor force participation rate continues to decline, eventually the tax system has to follow the money and move towards capturing a portion of consumption or wealth.

The European experience is that a society can implement all 3 of these taxing systems and still run enormous deficits. There is never enough OPM.
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Old 11-28-2012, 08:21 PM   #12
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The conspiracy theorists out there believe our government will confiscate our 401k's and then annuitize them for us in order to help solve the debt problem.

Sleep well tonight.
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Old 11-29-2012, 07:02 AM   #13
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Here's a TIME article on the subject: Fiscal Cliff: Why Congress Might Have to Mess with the 401(k) | TIME.com

A lot of scare tactics conjecture and pointing out the "low hanging fruit" of eliminating/changing 401(k) deductions, but no specifics on any movement in Congress to actually do this.
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Old 11-29-2012, 07:10 AM   #14
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Well, the journalists do have deadlines and must write their stuff even if there is nothing new to say or add.

When looking at the list of "tax expenditures" I don't get why IRA and other deferred income are looked at in the same light as a mortgage deduction. One is a permanent loss of tax revenue, the other only postpones it. IRAs eventually will pay taxes when the income is withdrawn.
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Old 11-29-2012, 07:26 AM   #15
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Old 11-29-2012, 08:27 AM   #16
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See the "wealth tax" thread elsewhere on this site.

All of us who've spent a lifetime "living below our means" now have a target on our backs! We're the dreaded 'wealthy' doncha know.

We're avoiding paying our fair share by putting our money into 'havens' like IRAs and 401Ks.
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Old 11-29-2012, 09:06 AM   #17
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See the "wealth tax" thread elsewhere on this site.

All of us who've spent a lifetime "living below our means" now have a target on our backs! We're the dreaded 'wealthy' doncha know.

We're avoiding paying our fair share by putting our money into 'havens' like IRAs and 401Ks.
On the last part, I would respond that we not really avoiding paying our fair share, we've just been deferring payment of part of our fair share using incentives for savings that Congress established and those same incentives have mechanisms (RMDs) to make sure we ultimately pay what has been deferred.

If we guessed right when we deferred, the payments will be at a lower rate than when we deferred, but for those who have been unexpectedly successful it might well be more (higher marginal tax rate when withdrawn than when deferred).
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Old 11-29-2012, 09:15 AM   #18
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I visited my 401k's this weekend. They didn't say anything about someone messing with them.
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Old 11-29-2012, 10:35 AM   #19
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401ks funnel HUGE sums of money into the stock market. In the "old days" prior to the 401k, Joe 6 packs saved via banks, not the market. The market was for rich people. (Obviously there are exceptions to this.) With the 401(k) - Joe 6 packs started investing in the market. There is NO WAY that Wall Street or the corporate big-guys will mess with that. If you eliminate or mess with 401ks, even fewer will participate in the market, and there will be a lot less of Joe-6-pack's money on the street.

Not going to happen. Too much big power vested in the idea of middle class money being in the market rather than savings accounts.

In 2011 - 69% of households had retirement accounts. Can you imagine that number that high in the 50's?

My in-laws (depression era) still don't have money in the market. 401k changed things on a generational basis.
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Old 11-29-2012, 11:12 AM   #20
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401ks funnel HUGE sums of money into the stock market. In the "old days" prior to the 401k, Joe 6 packs saved via banks, not the market. The market was for rich people. (Obviously there are exceptions to this.) With the 401(k) - Joe 6 packs started investing in the market. There is NO WAY that Wall Street or the corporate big-guys will mess with that. If you eliminate or mess with 401ks, even fewer will participate in the market, and there will be a lot less of Joe-6-pack's money on the street.

Not going to happen. Too much big power vested in the idea of middle class money being in the market rather than savings accounts.

In 2011 - 69% of households had retirement accounts. Can you imagine that number that high in the 50's?

My in-laws (depression era) still don't have money in the market. 401k changed things on a generational basis.
Right! One of the things that people miss is that much of "Wall St" IS Main St! If they want to help the middle class, they should stop demonizing Wall St.
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