I pledge the allegiance of my 401k to the United States Of American Debt!
Will the 401(k) and the Individual Retirement Account go the way of the dodo bird, a now extinct bird that once inhabited Mauritius, an island in the Indian Ocean? The bird lived undisturbed for so long that it lost its ability to fly. This may seem like a far-fetched metaphor for a retirement savings account, but recent Congressional discussions may threaten the survival of the retirement nest egg.
Image source: NY Daily Post
What’s Happening In Congress?
Frankly, Uncle Sam is desperate. With a deficit of over $16 trillion, it’s eying retirement funds as very promising. If the legislation to curb retirement plans is enacted, it will allow the IRS to get a hold of more than $18 trillion that is currently sitting in accounts. Besides 401(k) retirement plans, the government is also looking to get revenues from other tax break plans like, for instance, the mortgage tax deduction and employer health insurance.
Congress is looking at two main proposals to figure out how to alter the course of retirement funding.
The first proposal is that under the current rules for retirement accounts, employer and employee contributions are capped at $50,000. Legislators are speculating about reducing this cap by an immense $30,000. With the cap at $20,000, combined with the erosive effects of inflation on the value of the dollar, it will be difficult to build up a substantial nest egg.
The second proposal is that the 401(k) tax deductions will be replaced by an 18% credit system. This credit would be placed on a retirement account, but many are questioning whether will these tax credits are as good as the original deductions. Here is what this means: all contributions to a 401 (k) would be considered taxable income. This plan would increase the government’s revenue with an estimated $458 billion.
It’s Not Over Until It’s Over
Fortunately, at least at the moment, a few sober heads still prevail in Congress and these unsavory IRAs and 401k tax proposals that would quickly discourage retirement planning have met with some resistance.
Although an initial review of the Individual Retirements Account (IRAs) tax incentives by a House Ways and Means committee left the Individual Retirement Plan structure unchanged, allowing workers to continue to sock away money into either a tax-deferred 401(k) or IRAs, there is still some concern this debate is not over and this is only a temporary reprieve.
Questions for Discussion:
If one of these proposals or some version of this passes, do you think that this will end the 401k as we know it?
Will you still have the motivation to open a 401k and save for your own retirement?
Are you concerned about double taxation? Meaning on a scale of 1-10, if proposal 2 were to pass, how certain are you will get the credits you were promised?
Do you think this will hurt middle-class savers? Or perhaps do you think this is an attempt to bail out the government again? If so, what you would call it? I know, I have an idea… How about… The Patriotic 401k Stimulus!
Leave us your comments… Join the conversation!