Biden Wants To Take Your 401K

[yota691]

Biden Wants To Take Your 401K

Posted By: Patriots4Truthon: September 01, 2020

Round about a month ago, I took a closer look at Joe Biden’s retirement-related policy proposals, or, more specifically, those of the “Unity Task Force,” which had just released its final document.

One of the items in that document and on the Biden campaign website is a promise to “equalize the network of retirement saving tax breaks” — a proposal that generally translates to eliminating the tax advantages currently enjoyed by retirement savings accounts and replacing them with a “credit” or “match.” The idea is that the tax advantages, or “tax expenditures,” as they’re called, disproportionately accrue to relatively higher earners, and the hope of a change is to provide benefits in equal measure to all income groups.

But how this translates in practice is not clear. An article at Roll Call this morning picked up on the proposal, as did Courthouse News, but neither had more detail, referencing only a 2014 Urban Institute/Tax Policy Center proposal, which provided various hypothetical alternatives.

So what did that proposal suggest? It included a variety of options, including

• Reducing total available pre-tax savings (employer and employee) from (at the time) $51,000 to only the lesser of $20,000 or 20% of pay;
• Expanding the currently relatively-small “Saver’s Credit” (equal to 50% of the first $2,000 in retirement savings, only for relatively lower earners, up to $$19,500 for singles, $39,000 for couples; and phasing out quickly, to 20%, 10%, and ultimately nothing for singles with $32,500/couples with $65,000 in income) to stay at 50% for higher earners and phase out in a much more gradual manner instead; or
• Wholly removing any tax benefit for retirement savings and provide a credit of 25% instead (often this proposal includes a limit to the credit; this particular proposal doesn’t specify such; also, note that this was prior to the 2017 tax law which dropped tax rates).

Biden’s proposal sounds, well, fair enough. But what would happen, in practice?

Let’s start with a small point of clarification: strictly speaking, “401(k)” refers to the ability of a worker to defer a part of their pay for retirement savings purposes, and to avoid taxes until the money is ultimately withdrawn. The deferral of employer contributions is not a part of section 401(k) of the relevant IRS tax code. Does Biden want to remove the tax preference for both workers’ and employers’ contributions to retirement plans, or only the former?

The Urban Institute proposal assumed that higher-income workers would continue to save just as usual, even if they are on the losing end of tax changes. But would they continue to save through their employers’ 401(k)? And, likewise, if employers’ contributions no longer offered a tax advantage, would they continue to offer these plans, or to offer employer contributions to them?

As it is, “nondiscrimination” regulations require that employers design their plans to ensure that the amount of benefit received by lower-income workers is not too much less, proportionately, than highly-compensated employees, even though the latter are more likely to save and receive matches. The entire system is designed on the expectation that employers’ concerns lie largely with their higher earners and that they must be regulated into offering similar benefits to their lower earners. Would they be more likely, in these alternate circumstances (especially if benefits are capped and quite limited for higher earners), to simply boost pay instead so that these workers can seek out other forms of tax-advantaged investing?

To be sure, this isn’t generally an either-or situation. But employers evaluate their entire benefits cost and determine overall benefits & compensation budgets, shifting, at any one time, how much they allocate to retirement savings compared to pay raises. And this would surely be a consideration.

(Incidentally, in fairness, one further concern, that middle class savers who are currently urged by conventional wisdom to aim to save at least enough to receive their employer’s match, would aim for a lower target instead, that of the maximum “government-matched” contribution, might not be an issue: according to Vanguard’s 2020 survey, most savers do not target this “get the full match” level of savings at all. 34% of savers contribute less than needed to get the full match, a surprising 49% contribute more, and only 18% contribute exactly enough to get that full match, and nothing more.)

But there’s a final issue that’s even more concerning: this proposal doesn’t appear to recognize what really happens with retirement savings accounts tax advantages.

Here’s another example of such a proposal, a 2011 Brookings report:

“There is a formal economic equivalence between the incentives created by a deduction at a given rate and those created by a tax credit of a different rate. For example, a 30 percent matching credit is the equivalent of an income tax deduction for someone with a 23 percent tax rate. For every $100 contributed to a retirement account by an individual with a 23 percent tax rate, the individual would receive a tax deduction worth $23.”

These proposals appear to forget that tax advantages in retirement savings accounts are not simply a matter of deductibility, as one deducts mortgage interest or charitable deduction.

Instead, recall that in a Roth account, whether a 401(k) or an IRA, one pays taxes right away, then takes one’s money at retirement without paying further taxes.

In a traditional 401(k), one doesn’t pay taxes when making the contribution, but nonetheless must pay taxes upon withdrawing the money at retirement. This is the entire reason for the RMDs, required minimum distributions, to give the government its share without excessive delay.

But regardless of which type of account one elects, the principle is the same.

Imagine that the tax rate was entirely flat, say 20% for everyone, no deductions, no marginal rates. Your effective tax rate, measured as the proportion of the final account balance at retirement paid out in taxes, is 20% either way.

What’s the benefit of the tax advantage, then? It prevents workers from being double-taxed, that is, taxed on their investment return.

Here’s the math:

Imagine a 30 year career, where a worker has 3% pay increases each year and earns 6% in investment return each year.

With a 15% income tax rate, the tax-advantaged net tax rate at the end of the 30 years would be, of course 15%. But if there were no tax benefits, and if investment gains were taxed at the same rate, the effective tax rate would be 22%, considering the “cost” in taxation on the compounding of returns. If the income tax rate were 20%, the effective tax rate would be 29%. And a tax rate of 30% would result in an effective tax rate of 42%, in each case considering the proportion of the total investments paid as taxes over the years.

Hard to follow? Here’s a table to illustrate:

Simplified illustration of tax impacts on retirement accounts

own work

Here, “tax deferral, no Roth” is a scenario similar to capital gains, paying taxes only when you sell the stock. “Inside build-up taxed” is like an interest-bearing bank account, where you pay taxes on the interest every year. This is highly simplified just to provide an idea of what’s going on.

Now, reader, your own reaction might be: “what double taxation? It’s entirely fair to tax investment income!” But in either case, that means that the comparisons being offered are comparing apples to oranges.

Here’s another example: there have been proposals to switch from a “pure” tax deduction for charitable contributions to a tax credit instead. If the credit were set at 20% of the contribution, then anyone who pays income tax at a rate less than 20% would be a “winner” and anyone who pays taxes at a rate greater than 20% would be a loser.

But to remove the tax-deferral (or, in the case of the Roth, the removal of taxes on investment build-up), is wholly different conceptually. Yes, you can do the’ math of the long-term additional revenue the federal government would get by taxing investment gains (assuming they don’t find other tax advantaged savings, or stop saving altogether), and calculate, over the long term, how much the government could “spend” by giving tax credits for retirement savings instead, but it’s a much more complicated set of changes than it appears.

And, finally, here’s a comment by Biden adviser Ben Harris, made at a Democratic National Convention roundtable and cited by Roll Call:

“If I’m in the zero percent tax bracket, and I’m paying payroll taxes, not income taxes, I don’t get any real benefit from putting a dollar in the 401(k).” Harris isn’t wrong here — and, indeed, however much Mitt Romney was excoriated for saying that 47% of Americans don’t pay taxes, he was right. But there’s a place for both types of tax treatment, to accomplish two different purposes.

[yota691]

President Elect Joe Biden's Proposed 401K Changes

 

 

xtine Carter
2 days ago
Haven’t come across anyone who voted for Biden for his wisdom. But hey, 10% is always for the big guy. What a disaster this is. Screwing the middle class.

[yota691]

Joe Biden will end your retirement plan as you know it

Instead of changing the way taxes on 401(k) plans work, we should build on the bipartisan success of the SECURE Act

• September 29, 2020
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• By Ron Estes
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Remember when Barack Obama campaigned on a promise that if you like your health plan, you can keep it? Millions of Americans who lost their health insurance plans beg to differ.

 

Now, Joe Biden is campaigning on a similar promise when it comes to retirement security. He is campaigning on a pledge to strengthen retirement plans. Yet, like Obama before him, he’s really saying that you can keep your retirement plan if he likes it.

As the former Kansas State Treasurer with the responsibility to manage our state’s retirement plan, I led the way in changing the negative trajectory of the Kansas Public Employees Retirement System, which went from the second-to-last in the country in terms of funding to 29th today. I can assure you that there are several key problems with Biden’s approach to retirement security.

Biden essentially plans to change how retirement plans are structured by changing how the tax benefit works for your existing plan. He would repeal the current tax deferral of traditional retirement plans such as 401(k)s and individual retirement accounts and replace it with a tax credit. 

The details of his retirement plan are ambiguous but appear to involve taxing income twice by only including after-tax contributions in retirement accounts, which are again taxed as income when withdrawn. Biden plans to offset this double taxation with a tax credit that would make Americans more dependent on the government and prevent retirees from realizing the benefits of a lifetime of compounded interest on their pretax retirement account income.

In short, Biden wants to get rid of your retirement plan as you know it.

 

A better approach is to build on the bipartisan success of the SECURE Act recently passed by Congress that strengthened retirement accounts for millions of Americans. I was proud to work with Chairman Richard Neal, D-Mass., and my colleagues on the Ways and Means Committee to pass the SECURE Act, which allows small-business workers to join multiple employer plans and offers small businesses tax incentives to set up automatic enrollment in retirement plans.

Instead of ending your retirement plan as you know it, Biden should follow Chairman Neal’s lead and call for a Retirement Security 2.0 package that builds on the bipartisan success of the SECURE Act. Republicans and Democrats should work together on commonsense measures like auto-enrollment in retirement plans for new employees and increasing the required minimum distribution age from 72 to 75.

 

We should allow employers to make an elective contribution to a retirement account that matches what an employee pays in student loans. And we should permit nonprofits, school systems and religious institutions that participate in 403(b) plans to invest in collective investment trusts, as private-sector 401(k)s do.

In addition, Biden is already preparing to break his promise not to raise taxes on Americans earning less than $400,000 a year. He supports the financial transaction tax on middle-class Americans proposed by Sen. Bernie Sanders, D-Vt., which would see the government charge a fee to 401(k) accounts every time a transaction is made. Under Sanders’ version of the financial transaction tax, a typical retirement investor will end up with 8.5% less in his or her 401(k) or IRA after a lifetime of savings. In dollar terms, the average IRA investor would have $20,000 less at retirement as a result of this tax, according to a study by the Center for Capital Markets Competitiveness. 

According to a recently published study by the Penn Wharton Budget Model. Biden’s reckless proposal for $5.4 trillion in new spending over the next 10 years far surpasses the $3.4 trillion in new revenue his plan would bring in. Biden’s proposed budget is already $2 trillion in the red, but it pales in comparison to the radical wing of the Democratic Party’s reckless plans to spend at least $51 trillion on socialist programs like the Green New Deal, a government takeover of health care and “guaranteed income” for people who aren’t working.

COVID-19 is already disruptive and stressful for middle-class Americans, especially those nearing retirement. Policymakers should take responsible steps to provide real security, not reimagine retirement plans and raise taxes to fund the Democrats’ socialist wish list.

[nstoolman1]

I beat him to it. I withdrew mine already and spent it.

[haymon]

[yota691]

Joe Biden's Plans for Your 401K Explained With Examples! 📈 (Biden's 401K Plans) 26% 💰

 

 

Omar
1 week ago
Seeing the way governments debt is going by the time I get my 401k money out taxes are going to be 90%

[Shelley]

1 hour ago, yota691 said:

Joe Biden's Plans for Your 401K Explained With Examples! 📈 (Biden's 401K Plans) 26% 💰

 

 

Omar
1 week ago
Seeing the way governments debt is going by the time I get my 401k money out taxes are going to be 90%

He’ll be using 401K money to feed and house all the illegal alien’s 

[coorslite21]

Just part of the new doctrine of how to destroy America....

 

Sad part.....Joe doesn't even know he's President most Days......!

 

CL

[coorslite21]

Worst kept secret in the World is Bidens advanced degree of dementia.....

 

Original plan was 2 years and a day......then Harris might get 10 years total....(same bozo's that had 8 years planned for Hilary)

 

If you are familiar with the Film "Dave"......you may see something like that coming soon......

 

https://www.rogerebert.com/reviews/dave-1993