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Think your private retirement savings are safe?

Posted by on Apr. 25, 2012 at 11:44 AM
  • 12 Replies

Feds eye retirement-fund tax to cut $16 trillion-plus deficit

Read more: http://www.nypost.com/p/news/business/plunder_CrD9s6MElVsEIJj2IVgHuK#ixzz1t4EfKEhe

Uncle Sam, in a desperate attempt to fix its $16 trillion-plus deficit, is leering over Americans' retirement nest egg as its new bailout fund.

Capitol Hill politicians are assessing tax changes that could let the Internal Revenue Service lay claim to a portion of the $18 trillion sitting in 401(k) accounts and other tax breaks used by middle-class workers, including cutting the mortgage tax deduction.

A commission looking for ways to close the deficit, and, noting the extent of 401(k) tax breaks, recommends an examination of the system as one way to prevent government bankruptcy.

Besides 401(k)s, other possibilities include the mortgage-interest deduction on second homes, as well as benefits from employer-provided health insurance, which are untaxed now.

Under current 401(k) rules, total employee/employer contributions can't exceed $50,000. In the proposed rule change, employer/employee contributions would be limited to 20 percent of the employee's compensation, with a maximum of $20,000, the so-called 20/20 proposal.

Another proposal being discussed in Congress says all tax deductions on 401(k)s and IRAs to be replaced with an 18 percent credit. The credit, according to a proposal that has been endorsed by economist William Gale, would be placed directly in a person's retirement account.

"Unlike the current system," Gale told Congress, "workers' and firms' contributions to employer-based 401(k) accounts would no longer be excluded from income and would be subject to taxation, contributions to IRAs would no longer be tax-deductible and any contributions to a 401(k) plan would be treated as taxable income."

In other words, the employee and employer would no longer get a deduction under the Gale plan, they would qualify for a credit. And the credit would "increase [government] revenues by about $458 billion," Gale says.

Last week a group of retirement industry experts went to Capitol Hill to criticize these proposed changes in retirement-plan rules. "These changes could have unintended consequences," warns Lynn Dudley of the American Benefits Council (ABC).

Testifying before the House Ways and Means Committee about the proposals, Randolf Hardock, of ABC's board of directors, said, "[The idea] could seriously undermine the retirement savings system."

Jack VanDerhei, research director of Employee Benefit Research Institute (EBRI), believes either of the two proposed 401(k) changes under review would have a "catastrophic" effect on the current retirement saving system.

The 20/20 plan provisions curtailing non-taxable contributions would freeze out many higher-paid employees from signing up for a 401(k), which could lead some companies, according to critics, to question if plans would still be worth offering employees.

Reducing retirement-plan contributions for those at the higher end of the wage scale will inevitably have a bad effect on those in the middle and at the bottom, ABC's Dudley says.

by on Apr. 25, 2012 at 11:44 AM
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Replies (1-10):
rachelrothchild
by on Apr. 25, 2012 at 11:47 AM

No, I don't think they are safe.  I don't think retirement savings should be tied to employment either.

JakeandEmmasMom
by Gold Member on Apr. 25, 2012 at 11:50 AM

 It's a terrible idea.  It's a good thing it doesn't have a snowball's chance of passing.

bluerooffarm
by Silver Member on Apr. 25, 2012 at 12:00 PM

 When we wouldn't "take advantage" of the 401k offered by hubbies employer they thought we were crazy.  We save on our own for retirement and just don't use a 401k plan.  Not the IRA stuff has me concerned.

ExecutiveChick
by Silver Member on Apr. 25, 2012 at 12:01 PM
1 mom liked this

If our government officials thought there was outrage over Obama Care, just let them touch private retirement savings accounts and see the outrage.

rocketracer
by Gold Member on Apr. 25, 2012 at 12:10 PM

Just another way to grab money they didn't earn.

erika9009
by Silver Member on Apr. 25, 2012 at 1:33 PM

We don't think they are safe either. This a big concern as we have put away a lot.  I think if the gov tries this, there will be such hell to pay.  I think it would be worse than going after social security. 

romalove
by SenseandSensibility on Apr. 25, 2012 at 1:38 PM

 Cutting the mortgage interest deduction would also cause a revolt.  Housing isn't in any shape for them to make home ownership less desirable.

rocketracer
by Gold Member on Apr. 25, 2012 at 2:16 PM


Quoting romalove:

 Cutting the mortgage interest deduction would also cause a revolt.  Housing isn't in any shape for them to make home ownership less desirable.

I've heard doing away with the mortgage interest deduction is on the table.  Can you imagine what that would do to home purchases.  the real estate market is in the tank as it is.  Today it was announced that durable goods orders dropped 4.2% in march.  The real estate market can't afford to be stalled for too much longer. 

romalove
by SenseandSensibility on Apr. 25, 2012 at 2:18 PM

 

Quoting rocketracer:

 

Quoting romalove:

 Cutting the mortgage interest deduction would also cause a revolt.  Housing isn't in any shape for them to make home ownership less desirable.

I've heard doing away with the mortgage interest deduction is on the table.  Can you imagine what that would do to home purchases.  the real estate market is in the tank as it is.  Today it was announced that durable goods orders dropped 4.2% in march.  The real estate market can't afford to be stalled for too much longer. 

 It is mentioned in the OP.  No, I can't imagine it.  This would be political suicide, IMO, not to mention economic suicide as well.

bluerooffarm
by Silver Member on Apr. 25, 2012 at 3:02 PM

 I've been thinking about this a little bit more and although I'm not usually one to think conspiracy theory, I do think about power grabs.  I wonder about this as a power grab.  If the only "safe" and untaxable retirement savings plan is governmental Social Security, then the Congress gains power.  Who would gain by keeping the retired and the elderly poor?

I still think it is political suicide, but it seems a bit calculated to me.

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