House Democrats Contemplate Abolishing 401(k) Tax Breaks

[DrTeeth]

Repubs are squawking over this one..

http://www.workforce.com/section/00/article/25/83/58.php

[DrDan]

1. are they out of their minds?????

We (the U.S.) are probably the worst savers in the world. And now they want to remove one of the few saving motivators?

They are nuts.

[eleny]

2. Did you read the article - here's some more

"...are looking at redirecting those tax breaks to a new system of guaranteed retirement accounts to which all workers would be obliged to contribute."

I didn't trust the limited info in the OP so I'm reading it. They're concerned about protecting the investments from what I've read so far.

[susanna]

3. Exactly. OP left out a crucial detail. n/t

[eleny]

6. And you know how things will get hashed and rehashed when Congress is back in session

The fact that they're addressing the issue of the great losses the public has experienced is important. Not to do so would be irresponsible.

Sure, Wall St. and the Republicans will scream blue bloody murder. But they have to take some responsibility for the massive middle income of this nation and what's happened to us these past 8 years.

So far all we've heard is that Greenspan admits to making a mistake. His ass ought to be tarred and feathered in way that withers his own finances. I have the feeling that he and Andrea are doing just fine while middle income Americans are suffering greeatly.

[HereSince1628]

5. Did you notice the part where it says this will be a disincentive for employer matching?

The employer match is really a huge benefit for many people in 401ks.

[eleny]

7. These are only very early hearings...

I doubt that these first discussions will be put into law when it all gets finished. Congress members will be leaving and new ones will take office.

What I'm thinking is that the Dems are putting some deep fear into the Repukes and their Wall St. overlords. So you come out with language that scares the bejeesus out of them. Then when the dust settles, the real hashing out begins.

I wouldn't place total stock in what's been proposed. This is some saber rattling from the Dems who are just beginning to take the reigns of power since Obama has a real chance of winning the election.

[abelenkpe]

17. My employer does not match

and there is no pension. I'd really like a better option. I'd really like a pension....

[DrDan]

11. so under this plan - if you make $100K - you would put $5000 in the new plan - after paying taxes

Under the current plan - you could save tax-free either $15,500 or $20,500 depending on age. And most also get an employer contribution.

I have been a part of 2 different 401K's. Under both, very conservative options were available to protect the contribution.

So exactly how is this going to encourage more savings on the part of Americans?

And it is not a federal subsidy - it is just delaying the inevitable taxes on that account.

[WCGreen]

18. The tax theory is you will be in a lower tax bracket when you W/D

the money...

[DrDan]

19. yeah . . . and?

this is a lousy plan!

[fed_up_mother]

22. With the matching program, many of us are still much better off even with stock losses

I can't save this much on my own. Besides, we have the option to put our money in pretty secure investments.

[fed_up_mother]

21. Definitely out of their mind, and their TIMING STINKS

[DrDan]

27. we need to get Americans on the path of saving

Americans spend spend spend - to the detriment of their savings.

This does nothing to encourage savings.

It is a LOUSY plan.

[melody]

4. Oh, please, go read the link -- it's not what you're saying it is n/t

[DrDan]

12. well . . . . as I stated in another response -

If you make $100K, you would be putting $5K in the savings account - after paying taxes (ok - so you get a check for $600 to cover the tax).

Today's current plan allows a savings of $15,500 or $20,500 depending on your age - and most also get an employer contribution. At the 28% bracket, your tax delay is $4340 or $5740. It is not a subsidy - it is only delaying the inevitable.

Where is the encouragement to save as to compared to the current 401K plan?

[melody]

13. That isn't what is said -- re-read it

I don't have the time to outline it for you.

[DrDan]

14. well . . .

"all workers would receive a $600 annual inflation-adjusted subsidy from the U.S. government but would be required to invest 5 percent of their pay into a guaranteed retirement account administered by the Social Security Administration."

So as I said - if you make $100K, you would put #5K in your account - and you would receive $600 subsidy - my assumption being that is to offset part of the taxes you would pay on the $5K.

But today's plan allows you to save $15,500 or $20,500 with the taxes being deferred. In addition, employers typically also make a contribution to the account which apparently they will probably not do under the new plan.


How am I doing so far? I know you are a busy person . . . but is the above correct?

If that is correct, I claim the propensity to save would be much greater under our current plan.

[fed_up_mother]

23. Many of us will be in much lower tax brackets when we take out the money!

And with 100% matching, there's no way that other plan would be better for us.

[DrDan]

24. the new plan?

Exactly - it is a lousy plan for most of us.

The only people that it would benefit are those that are not saving 5% of their income. That is all!!!!! It forces them to save

And why penalize those of us who have a saving plan? We lose the tax deferral. We lose the matching.

Makes absolutely no sense to me.

[DrTeeth]

8. i was just posting the headline and a link to the article

I'm just a poor caveman when it comes to this kind of stuff. 401s are a strange and weird world to me. I figured better minds would be able to decipher it than me. :toast:

[eleny]

10. Better to do a little more reading before posting a headline

This can be a tough place. But welcome. :hi:

[napi21]

9. Ahhhh, I don't know if I like that idea. There really ARE a lot of people who only contribute to

a 401k plan because of the employer match. I spent many hours explaining to low income workers how 401k's work, and because their contribution wasn't taxed, and their employer matched their contribution, they'd come out ahead of the game, and the weekly effect on their takehome pay would be VERY SMALL. I guarantee you, I would have never been successful at pushing a "savings plan" because they would have simply said "I can't afford to take ANY $$ out of my weekly check! I barely get by NOW!"

What exactly is he talking about when he says "An $80mm annual investment by the gov't?" I assume he's talking about the $$ invested is not taxed until it's withdrawn years later, so that $80mm investment is taxes not collected?

[One_Life_To_Give]

15. 3% Are they NUTS!!

Inflation is going to kilthe purchase power of the investment. After 30 years of work you will be lucky to have 18months pay at your final rate in that account. I don't know many people who could do much in retirement on that.

[DrDan]

16. the plan is crazy

it appears what they want to do is start with Social Security and make a true pension plan out of it.

You would add up to ($4,400 to your "Social Security" contributione ($5,000 - $600).

From that, SSA would manage a pension plan investing that $4,400 at 3%.

Lousy plan!

Instead, they should develop more creative ways for people to save - and more options where the savings can earn.

I hope this is put to bed early.

[demnan]

20. I thought this was a bad idea until I read the 2nd paragraph:

"House Education and Labor Committee Chairman George Miller, D-California, and Rep. Jim McDermott, D-Washington, chairman of the House Ways and Means Committee’s Subcommittee on Income Security and Family Support, are looking at redirecting those tax breaks to a new system of guaranteed retirement accounts to which all workers would be obliged to contribute. "

[fed_up_mother]

25. What about this 2nd paragraph makes it better?

That we would all be forced downward, instead of lifting other people up? This plan is a bad, bad idea, and furthermore, if the republicans get on the campaign trail with this it could really hurt us. The plan is awful, and the timing is worse.

[DrDan]

26. it will just be an expansion of the current Social Security plan - making

it a true pension plan.

You will raise your "SS" contribution and then receive a guaranteed pension.

But . . . if the contribution is put in a 3% bond, there is no way your 5% invested at 3% can match the current plan, particularly when the contribution is taxed. The current plan allows a saving of $15,500 (or $20,500 tax deferred) per year. Unless you are making $400K, you cannot match the current plan. It is probably worse than that as the tax deferral is also removed and employer contribution will also probably go away.

Still a lousy plan in my mind - for anyone who does any 401K savings right now.