Are you afraid that the government will confiscate your 401K to stay solvent?

[Htown Harry]

Most likely change to go back to where survivors have to take distributions over the life of the original 401k holder (i.e. the same percentage RMD's after the estate taxes are paid). Recall that they changed to allow those who inherit to reset the RMD clock I suspect it will modify to over the originators lifetime. The idea being that one could not keep money in an IRA/401k for more than 1 lifetime.

Hadn't heard this idea before. But I do think that it could be a viable idea politically - it has some populist angles and the revenue potential over time might be significant.

Of course I'm violently opposed, because I have a small part of my nest egg in an inherited IRA subject to RMD's over my lifetime.

 

[FIREd]

They took away the tax deduction for high earners a long time ago. Certainly by 1992 when I first started putting money into an IRA I was earning too much for a tax deduction. But I agree, they may remove it altogether or lower the threshold to capture lower paid folks.

While they have taken away the tax deduction on IRAs for high earners, those people can still deduct 100% of their 401k contributions. For now. I have heard several politicians mention that tax deductions on retirement account contributions are expensive (lost revenue) and that they disproportionally benefit people with higher incomes because they contribute much more to their retirement accounts than people with lower incomes. Also the 401k deduction is much more valuable for people in higher tax brackets than for people in lower tax brackets. Seems like a pretty low hanging fruit...

 

[W2R]

You've got a point. My back yard is at her service. Nice dry and clean desert soil.

Umm.... I'll let you bury your own cash there.

Alan is right about our soggy soil, and in my case my house is 2.4 feet below sea level. If I should ever want to hoard cash I can always put it in the attic (next to the axe that many New Orleanians keep in their attics, but that's another story). For now, I think Vanguard and my bricks-and-mortar bank will do.

 

[kyounge1956]

I'm responding to this not because I'm a financial whiz (I'm not) but because I dislike the fearfulness and distrust of government being promulgated by some folks who play fast and loose with the facts. I tried to follow the links in the articles. The Bob Brinker link you gave did point to a Bloomberg article from January: "The Obama administration is weighing how the government can encourage workers to turn their savings into guaranteed income streams". Nothing about the government taking anything. The second article had a dead link to what I think was supposed to be the same Bloomberg article, but it had been wildly mischaracterized.

the second link worked for me, although it took a long time to load. It goes to a World Net Daily article by Jerome Corsi. I think these articles are all referring to a proposal by economics professor Teresa Ghilarducci, which was discussed on ER last fall in several threads:
401k pre-tax contributions no more?!?
Time Mag: Why its time to retire the 401 (K)
Americans Oppose Initiatives Limiting 401(k) Choices, ICI Says

(snip) If you are following someone who wants you to be scared, they are not a good leader and you should consider finding a better leader or better yet don't be a follower.. Get informed.
Thanks for posting.

Well said!

 

[tuixiu]

I just hope the cost of tin-foil isn't tied to the again rising commodities market, else how will we continue to be able to purchase hats?

 

[donheff]

If you are following someone who wants you to be scared, they are not a good leader and you should consider finding a better leader or better yet don't be a follower.. Get informed.
Thanks for posting.

+1

 

[Lazarus]

Even it it all came to be you could just pull out of your 401K and take the 10% tax penalty to avoid it if you are under 59-1/2. Yes we all want to minimize taxes on our retirement funds but it would be better than any government effort to force or control your finances. Also if this ever happened I would expect a huge decline in the market from everyone selling their 401K's. This would not leave much to be confiscated or taxed and would defeat any evil intent they have so I would not worry about it.

Exactly what I would do.

But don't forget the aprox. 50% of people who would like the government to take care of them. These are the same ones with no savings to speak of. They would undoubtedly get a minimum annuity from the program which would be better than they could do on their own. I think a lot of people would be on board for this.[Moderator Edit]

 

[skyvue]

I have been reading this, and am becoming a bit scared. Keep in mind that most folks have little to nothing in their retirement accounts, so what do they care?

Bob Brinker Fan Club Blog: Bob Brinker on Government Encouraging Savers to put 401K and IRA assets into annuities.

Obama to meddle with your retirement account?

Ridiculous!

 

[Zathras]

I'm responding to this not because I'm a financial whiz (I'm not) but because I dislike the fearfulness and distrust of government being promulgated by some folks who play fast and loose with the facts. I tried to follow the links in the articles. The Bob Brinker link you gave did point to a Bloomberg article from January: "The Obama administration is weighing how the government can encourage workers to turn their savings into guaranteed income streams". Nothing about the government taking anything. The second article had a dead link to what I think was supposed to be the same Bloomberg article, but it had been wildly mischaracterized.
Although I've been investing for well over 20 years, and interested in national and world news for much longer than that, I'm still learning. But one thing I have learned well is to consider the source. Read the original source whenever possible. Use the nonpartisan politifact.com, factcheck.org, and even snopes.com when you hear something scary, before you even begin to believe it.
If you are following someone who wants you to be scared, they are not a good leader and you should consider finding a better leader or better yet don't be a follower.. Get informed.
Thanks for posting.

This gets my vote for 'post of the year'!!

 

[Midpack]

Let's see, they are afraid to do anything with Soc Sec or Medicare, but they might confiscate our 401k's and IRA's? Seems far fetched to say the least...

 

[Dreamer]

Not worried.

 

[Alan]

While they have taken away the tax deduction on IRAs for high earners, those people can still deduct 100% of their 401k contributions. For now. I have heard several politicians mention that tax deductions on retirement account contributions are expensive (lost revenue) and that they disproportionally benefit people with higher incomes because they contribute much more to their retirement accounts than people with lower incomes. Also the 401k deduction is much more valuable for people in higher tax brackets than for people in lower tax brackets. Seems like a pretty low hanging fruit...

Absolutely agree with you on 401k's, and since they've already done the pullback on IRA deductions for high earners then it would seem all too logical to do similar with 401k's.

 

[winger]

I'm far more concerned about someone like Goldman-Sachs getting their hands on my money.

 

[NW-Bound]

Umm.... I'll let you bury your own cash there.

Alan is right about our soggy soil, and in my case my house is 2.4 feet below sea level. If I should ever want to hoard cash I can always put it in the attic (next to the axe that many New Orleanians keep in their attics, but that's another story). For now, I think Vanguard and my bricks-and-mortar bank will do.

In order to keep a sizeable portion of your portfolio out of the grubby paws of the gummint, you will need to hide more than a mere few $K. We are talking about coffee cans filled with Krugerands here. No paper money as it can rot.

Attic? With the storms, tornadoes, house fire potentials?

No, ma'am! In the ground it has to go. Like the nice, dry, clean soil of my backyard.

 

[W2R]

In order to keep a sizeable portion of your portfolio out of the grubby paws of the gummint, you will need to hide more than a mere few $K. We are talking about coffee cans filled with Krugerands here. No paper money as it can rot.

Attic? With the storms, tornadoes, house fire potentials?

No, ma'am! In the ground it has to go. Like the nice, dry, clean soil of my backyard.

Ha ha! In your backyard, with the rattlesnakes, scorpions, and prickly pear? No way.

Actually, it's other animals that scare me. Although I don't really think I'll hide money away from the gummint or for Armageddon-like scenarios, I have read about home invaders who demand money from the homeowner and then if none is supplied, shoot said homeowner dead on the spot. Maybe a thousand in ones and fives would satisfy such an animal. Other than that, I have no reason to keep money anywhere but in the bank. And that is probably an unreasonably remote possibility since nobody has broken into my home (here) before.

 

[Westernskies]

they will have to pry it from my cold, dead hands...

 

[NW-Bound]

Ha ha! In your backyard, with the rattlesnakes, scorpions, and prickly pear? No way.

Other than that, I have no reason to keep money anywhere but in the bank.

My backyard is better than any bank, as nobody would even suspect your stash is there. I will provide photos to show how these coffee cans are securely buried. I have no rattlesnakes nor scorpions, but why would these be bad? They would be cost-free guardians of your treasure! I will even raise some, just for you.

 

[toofrugalformycat]

No way am I using my backyard as a repository. My next-door neighbor owns a backhoe!

 

[travelover]

The government already owns 25% of my 401(k). They are just letting me hold it for now.

 

[ziggy29]

The government already owns 25% of my 401(k). They are just letting me hold it for now.

As of now, same here, but I'm planning on reducing their ownership to 15% when I retire.

 

[Westernskies]

Why would the govt confiscate 401(k)s when they can just tax the heck out of them?

Consider the possibility of incremental confiscation- where the taxes on withdrawals exceed the interest earned on the balance.

 

[IndependentlyPoor]

I never worried about outright confiscation, but I did worry about paying higher taxes on my 401(k) upon withdrawal than I would pay in a regular taxable account, so I didn't always max out my 401(k). Typical of me, I waffled back and forth. Hey, during the Bush II years, we were looking at historically low income tax rates and still had very high debt, so higher taxes in the future seemed like a pretty good bet.

So far, it hasn't worked out that way. My 2009 tax rate was ridiculously low.

Still, it is not to late for them to fix that.

 

[ziggy29]

I never worried about outright confiscation, but I did worry about paying higher taxes on my 401(k) upon withdrawal than I would pay in a regular taxable account, so I didn't always max out my 401(k). Typical of me, I waffled back and forth. Hey, during the Bush II years, we were looking at historically low income tax rates and still had very high debt, so higher taxes in the future seemed like a pretty good bet.

There's no way they would ever be so transparent as to do an outright takeaway.

I do fear that at some point, the value of your retirement accounts may be used as one way to means-test Social Security.

 

[IndependentlyPoor]

There's no way they would ever be so transparent as to do an outright takeaway.

I do fear that at some point, the value of your retirement accounts may be used as one way to means-test Social Security.

Dang. I hadn't though of that. You had to go and ruin my day didn't cha?

 

[NW-Bound]

Talk about hiding your stash in the attic , I just remember that I already posted a story of a man doing just that, and ending up with disastrous results.

You can read about it here.