Uh, messing with 401Ks and IRAs?

[B2G]

Really? Ouch.


One of the earliest fears about tax-favored savings accounts like IRAs and 401(k) plans was that when this pool of savings grew large enough Congress would not be able to resist tapping it to help solve the nation’s debt problems. We’re about to find out if those fears—persistent for decades—have been justified.

Everything including the sacred mortgage deduction is on the table as lawmakers wrestle with the fiscal cliff, a year-end avalanche of scheduled spending cuts and tax increases. With a combined $10 trillion sitting in IRAs and 401(k) plans, retirement accounts make a juicy target. Some of this money has never been taxed, and under current law never will be.


http://business.time.com/2012/11/28/fiscal-cliff-why-congress-might-have-to-mess-with-the-401k/?iid=biz-main-lead

[OKNancy]

1. You know, you try to do everything right, and someone wants to screw you

I get it. From the article, it says that these tax deferred accounts are mostly used by the rich.
What bothers me is neither my husband or I worked for companies who had employee savings or IRAs.
I was self-employed and he is a house painter. Believe me, it stung to put away what little we had into
an individual IRA. It's not a grand amount, but it will keep us out of the poor house after he retires.

Obviously, our contributions were taxed as income... grrr if they touch the little folks accounts.

[B2G]

2. And that part of the aricle is total BS

These accounts are not just used by the rich. My 16 year old nephew who is a checker at a grocery store has one established. It's bullshit to justify this grab.

It's one of the few things companies do for the 'little people' when they provide an employer match. The tax free part is what incents people.

I will be livid if this happens. I can't believe they're even considering it.

[auburngrad82]

6. It's only tax free until you start drawing on it

When you take money from a 401-K you pay taxes on the money withdrawn. If you withdraw it before you're 59 1/2 you also pay a tax penalty. So, really, it's not tax free.

[JDPriestly]

8. And you are required to start drawing on it in the year

you turn 70 1/2 as I understand it.

The taxes are deferred, not credited.

[B2G]

10. That's hardly the point

The point is that if the government eliminates the pre tax benefit, employee & employer contributions will decline, resulting in less savings.

And there's the question of what would happen to the money already invested. Could it be assessed a tax retroactively?

[auburngrad82]

19. This is a non starter

Remember what happened with Enron's 401-K and retirement plans? The employees lost everything. That's not that far in the past and, if I remember correctly, laws were passed to better protect people's money in these accounts after the Enron fiasco. Yes, most of the losses were due to the fact that a disproportionate amount of the 401-K investments were in Enron stock, but people tend to focus on the fact that Enron screwed their employees out of their retirements and not on the actual cause.

All we Dems need to do when people start talking about "accessing 401-Ks is yell "Enron!"

http://abcnews.go.com/Business/story?id=87516&page=1#.ULkVY4YrNf0

http://money.cnn.com/2001/11/26/401k/q_retire_enron_re/

http://usatoday30.usatoday.com/money/companies/management/story/2011-12-03/enron-10-years-later/51592092/1

[sendero]

31. They only lost it..

... if they had their money in Enron stock. If you are dumb enough to put more than 10-20% of your money (or should I say if you are THAT high risk a gambler) into a single company, then well shit happens.

I stopped putting money into my 401K because there are more nefarious schemes being floated than just reducing the deferred tax status. There are people who want to give you the "option" (for now) of converting your nest egg into an annuity.

No fucking thank you Uncle Sam.

[hollysmom]

34. they had money in the company stock because a lot of companies required it back then

as bad was when color tile went out of business - I was working for some pension actuaries at the time and that was all they could talk about. Color tile gave the employees a choice of how they wanted to invest in color tile stocks or bonds. Didn't matter when they went under the CEO made out like a bandit and the employees were left with nothing because their traditional retirement plan was also totally invested in Color Tile. That was when a law was passed so companies could not require you to invest in them.

My last job for Mellon, the matching funds were in Mellon stock, we had no choice on that, but all the money we could put in had to be invested in mutual funds only. On the side the company pushed the company stock to emplyees at 40 a share , where the CEO and board got it at $6 a share and middle management got it at $20. The 20 paid off, but the employees with the $40 lost money all the time.

I still don't believe the head of Enron is dead, I think the suicide was faked. He should have had every cent he had taken and distributed to the stock holders. As to the employees, they were lied to continually about how great business was, while upper management was dumping their stock they put a 6 month hold on the lower level employees 401K so they could not cash out.

[Common Sense Party]

38. The company MATCH was required to be in Enron stock, and they weren't allowed to sell shares

whenever.

But EMPLOYEE contributions were able to be invested in a number of good mutual funds.

[B2G]

39. That was Enron

My compay allow matching funds to be invested in a variety of vehicles.

[hollysmom]

42. no, I was talking about Color Tile.

[Common Sense Party]

45. Sorry, I was referring to the Enron comment above.

[sendero]

44. I was not aware...

... I googled your assertion that people were forced to invest their 401K in Enron stock, that is false. Google it yourself. People had other options they piled into Enron the same way sheep pile into bubbles of all kinds. I did not google Color Tile, I don't care about them, my comments were not about them.

Nobody is more annoyed at the entire Enron debacle, both the "deregulation" that enabled it and the dearth of punishments meted out after it, than I am.

Most companies offer a set of mutual funds, usually including a money market fund (because I would not personally put a cent in the rigged stock market of today, because when they tank it again you will lose). Nobody is forced to use the 401K program at all, and I am pretty sure that if you are in a situation where there are not good investment options you can mange the money yourself (complicated though).

[Yo_Mama_Been_Loggin]

37. There are ways to withdraw before 59 1/2 without the penalty.

But they are extremely limited.

[liberal_at_heart]

14. Americans have an average of about $60000 in retirement accounts

More than half of Americans have no retirement at all. These accounts are used by the rich to hoard billions of dollars. I say tax it.

[B2G]

15. That is BS

If half of Americans have a 401K, they are not used by the rich to 'hoard' money.

I thought only 98% of all Americans made over $250K a year?

Which is it?? I've had a 401K since I was 25 years old, when my salary was $25K a year.

You are full of shit.

[liberal_at_heart]

18. I have a 401(k) as well

and it is about average. No body else in my family (father, both brothers, mother in law, father in law, brother in law, sister in law) even has a 401(k). If you are above average then good for you but most people do not have a fraction of what they will need to retire. Maybe they could put protection in there for people who have less than 2 or 3 million in retirement accounts but people who have tens or even hundreds of millions of dollars in retirement accounts should have to pay more.

[dawg]

17. The money will be taxed when it is distributed.

And the laws force eventual distribution, so no worries.

In the meantime, lots of middle class people are able to benefit from tax-deferred investing. If their employers match contributions, so much the better.

[B2G]

20. You did not read the article

It says they're proposing to do away with the pretax benefit.

[dawg]

26. No. I was replying to the other poster who wanted to tax the accounts now.

I was reminding him that the money will eventually be taxed under current law anyway, so the "rich" aren't getting away with murder by using 401(k) accounts.

I read the article. It's just a paranoid fantasy. Like the government taking all the guns away.

[mainer]

29. "The rich" don't park their money in IRAs

There's a limit to how much you can contribute every year, and an IRA would be small potatoes for them.

Unless your name is Mitt Romney and you have some smarmy way of grossly undervaluing your contribution.

[OKNancy]

41. The article said that, not me

[1StrongBlackMan]

32. ???

Obviously, our contributions were taxed as income.

Your IRA contributions were taxed as income? It may have been taxedd as income when you earned it, but didn't you take the tax deduction for those contributions?

[OKNancy]

40. yes, the contributions were already taxed when they were paid as wages

This was in response to a sentence in the article.

[dawg]

3. No one with any authority is talking about this.

This is right-wing nightmare fuel. That is all.

[B2G]

4. Then Obama needs to state it's off the table. Has he? n/t

[dawg]

5. No. Because it is a ridiculous idea that is not even being considered in the first place.

I don't think the President needs to recite a laundry list of all the things that have not been placed on the table.

[B2G]

7. Given the amount of media coverage this is receiving,

I respectfully disagree. This would impact countless numbers of people.

[dawg]

9. How much media coverage was given to the President's birth certificate?

This is the same old crap. It has been trotted out since the Clinton administration at least. It is partly an attempt to scare middle class people into supporting conservatives, and partly a true representation of the delusional state of the Republican mind.

This is no different from the gun nuts who cleared the stores of guns and ammunition in 2008, and to a lesser extent this year after the election. They are paranoid, and this is one of their paranoid fantasies.

Don't get me wrong. I'm not trying to criticize you. I just want you to understand that this isn't anything you should spend even one minute worrying about.

They won't even change the rules to prevent people like Mitt Romney from, somehow, accumulating over $10 million in a Roth IRA.

[B2G]

12. Good, I hope you're right

Because my 401K is the only thing standing between me and poverty upon retirement. I hold no illusion that SS will be there by then.

When I look at all of the money I've pumped in over the years, it makes me ill.

[dawg]

16. There's no reason Social Security can't be there, too.

We could pay between 70-80% of your projected monthly benefit, without making any changes at all, and the system would be balanced in perpetuity. Unless we allow the system to be dismantled or privatized, that is the worst case scenario. And really, that (70%) isn't all that bad.

I'm an investing kind of guy, by the way. I think it's a great thing to invest through qualified plans, and the government should continue to encourage people to do so. I do lament the demise of the defined benefit plans that companies used to offer. 401(k) plans have shifted market and investment risk to the employee, and many employees are not handling that all that well. But it sounds like you are making good choices! It will pay off in the long run.

[1StrongBlackMan]

33. +1 n/t

[gollygee]

11. I'd love to see some Republican congressmen suggest it

Give them some rope.

[SoCalDem]

21. Not that big of a deal really..

401-ks were never really a "retirement" vehicle for the masses..

Most "ordinary folks" have less than $50K in them at retirement anyway..

It's better than nothing, but not much..

It was just a clever way for bosses to get extra deductions and to weasel out of funding REAL retirement plans..

and an extra-juicy way for Wall Street Wizards to have weekly gambling money for decades before anyone really paid much attention to it.

[B2G]

22. Wrong

Hare the median 401k balances for people at retirement age in different income brackets.

• For people who earn between 20-$40,000 a year the median 401k account at retirement is $64,147

• For people who earn between $40-$60,000 a year the median 401k account at retirement is $97,588

• For people who earn between $60-$80,000 a year the median 401k account at retirement is $160,051

• For people who earn between $80-$100,000 a year the median 401k account at retirement is $237,303

• For people who earn over $100,000 a year the median 401k account at retirement is $350,576

http://www.stocks-simplified.com/Average-401k-Balance.html

[liberal_at_heart]

23. with health care costs and inflation people should have way, way, way more

Yes, it is better than nothing but those amounts are a tiny fraction of what people will need to retire. Maybe they can put protections in place for people who have less than 2 or 3 million in those accounts. But people with multi millions or billions of dollars in those accounts should have to pay more. Are you telling me that you don't think Romney should have to pay more? He is living off of his investments, paying dividend taxes at around 15%, and is not even retirement age. Given the accounts he is living off of now are not retirement accounts but if he has so much money he can afford to live off of investments now, how much money does he have in retirement accounts? I can't even fathom how much money that man must have.

[B2G]

24. What the hell does that have to do with taxing 401Ks?

You start chipping away at peoples' ability to save, it's a bad thing.

Can we leave the ultra rich out of just one discussion? This would impact us all.

[liberal_at_heart]

25. I have already suggesting putting protections in for people who have less than 2 to 3 million

do you think people who have say 100 million in retirement shouldn't have to pay more?

[B2G]

27. No, I don't

I would prefer a means test to collect SS based on total retirement income as opposed to taxing 401Ks. There has to be a limit somewhere as to what the government can tax.

There has to be.

[dawg]

30. The solution to the whole thing is to revert to the Clinton-era tax rates.

There is no need to resort to exotic new taxes, or to go back on promises previously made to the American people.

Essentially we just need to "undo" the things George W. Bush and the Republican Party did since the 2000 election.

That, along with raising the income ceiling for the Social Security tax, would eliminate most of our problems. We do need to make more progress on the health care front, but not by cutting people's benefits. There is plenty of waste and duplication of services that can be eliminated. Letting Medicare negotiate prices with pharmaceutical companies would be a start.

[hollysmom]

35. I am ot sure how accurate this is

The actuaries told me years ago that if you earned 50K a year, you should save 1Mil by retirement to live you comfortable life - but in retirement, I spend way less on clothes food and regular commuting, more than I spend on additional travel higher housing costs. I probably live on about 20K less a year than when I worked.

[dawg]

28. Of course, you will probably find plenty of people on this board who would be willing to do this.

After all, we have lots of socialists here. Some of them are really nice.

But no one who thinks that way is allowed within ten miles of the policy-setting apparatus in the White House.

[Yo_Mama_Been_Loggin]

36. Leave these the fuck alone

Many companies do not offer a retirement but offer an enhanced 401K instead.

[hollysmom]

43. could this be misleading and just be about

those who have 401Ks and not including those that did not opt in or did not have choice? One brother has 0 in 401K, he opted out because his wife is a spend thrift and he is non-confrontational.