Author Topic: impacts to 401k plans  (Read 1150 times)

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impacts to 401k plans
« on: October 26, 2017, 10:11:53 AM »

Offline slamtheking

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https://www.washingtonpost.com/news/business/wp/2017/10/25/house-gop-tax-leader-threatens-to-break-trumps-promise-not-to-change-401k-rules/?utm_term=.3ee95b961f30

Been listening to what little tax plan changes the Republicans are proposing and seeing this attack on 401K plans being offered as a method for the Reps to pay for a tax cut that will most likely benefit the wealthiest in the country.  (admittedly I don't have the details of the full plan to know for sure that it will mostly benefit the rich but I feel pretty comfortable going out on that limb)

Initially I heard Trump state that he wouldn't support a drop in the tax-free limit for 401k contributions but then I heard yesterday that he was changing his mind in that regard (shocker that he could change his mind  ::) ).    Reading several articles (including the attached) where Trump may or may not hold the line on the $18000 limit depending on what it takes for him to get some sort of tax changes passed into law.  Trump praises 401K as the most used/likely way for middle and lower class workers to save for retirement and as such he wants to do as much to encourage people to save for retirement.  Lowering the tax-free threshhold to only $2400 will have more of a penalizing than encouraging affect on savings--particularly for people whose companies offer a money-match benefit for 401k contributions.  Add in the fact that the days of people getting pensions for retirement is dwindling quickly which leaves 401K plans as the only option for many people. 

For once I agree with him (when he states) that this limit needs to remain at its current level (if not increased --> it's not like people aren't taxed on what they withdraw when they retire).

I shudder to think how much of a hit my retirement contributions will take should this fiasco come to pass.  I have little doubt that the govt will tax anything taken out of my 401K upon retirement even though I would have already paid taxes on what was contributed already. 

This doesn't even begin to shed light on the details that have remained hidden in the Reps proposed tax code changes.  I have little doubt that lower and middle class people will come out on the short end yet again.  Would really like to have Trump put his returns out there for everyone to see so they can analyze how much his tax situation improves based upon the changes he supports.

Thoughts on this from anyone? 

Re: impacts to 401k plans
« Reply #1 on: October 26, 2017, 10:15:02 AM »

Offline Fan from VT

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https://www.washingtonpost.com/news/business/wp/2017/10/25/house-gop-tax-leader-threatens-to-break-trumps-promise-not-to-change-401k-rules/?utm_term=.3ee95b961f30

Been listening to what little tax plan changes the Republicans are proposing and seeing this attack on 401K plans being offered as a method for the Reps to pay for a tax cut that will most likely benefit the wealthiest in the country.  (admittedly I don't have the details of the full plan to know for sure that it will mostly benefit the rich but I feel pretty comfortable going out on that limb)

Initially I heard Trump state that he wouldn't support a drop in the tax-free limit for 401k contributions but then I heard yesterday that he was changing his mind in that regard (shocker that he could change his mind  ::) ).    Reading several articles (including the attached) where Trump may or may not hold the line on the $18000 limit depending on what it takes for him to get some sort of tax changes passed into law.  Trump praises 401K as the most used/likely way for middle and lower class workers to save for retirement and as such he wants to do as much to encourage people to save for retirement.  Lowering the tax-free threshhold to only $2400 will have more of a penalizing than encouraging affect on savings--particularly for people whose companies offer a money-match benefit for 401k contributions.  Add in the fact that the days of people getting pensions for retirement is dwindling quickly which leaves 401K plans as the only option for many people. 

For once I agree with him (when he states) that this limit needs to remain at its current level (if not increased --> it's not like people aren't taxed on what they withdraw when they retire).

I shudder to think how much of a hit my retirement contributions will take should this fiasco come to pass.  I have little doubt that the govt will tax anything taken out of my 401K upon retirement even though I would have already paid taxes on what was contributed already. 

This doesn't even begin to shed light on the details that have remained hidden in the Reps proposed tax code changes.  I have little doubt that lower and middle class people will come out on the short end yet again.  Would really like to have Trump put his returns out there for everyone to see so they can analyze how much his tax situation improves based upon the changes he supports.

Thoughts on this from anyone?

My thoughts are no one should be surprised that republicans want to pass a tax plan that funnels money disproportionately toward the 1%. All of their tax plans are variations on how to do that, with various window dressing to make it seem short term palatable to the middle class.

Re: impacts to 401k plans
« Reply #2 on: October 26, 2017, 10:20:42 AM »

Offline Donoghus

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What an absolutely horrible idea.  Who's brilliant idea was it to decimate pre-tax limits to cover up a revenue shortfall brought on by these tax cuts? 

So many people rely on these plans to build a large chunk of their retirements.  I hope those people who are blindly partisan realize how badly this could affect them.


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Re: impacts to 401k plans
« Reply #3 on: October 26, 2017, 10:22:08 AM »

Offline Fafnir

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Its weird that is a tax that basically hits middle to high income earners to help pay for massive tax cuts on the upper bracket. Very off message.

But like the SALT deductions its all about cramming as much upper bracket and pass through relief as they possibly can. They assume they can restore popular tax breaks back in as future tax relief if needed politically.

If you look at the standardized/itemized deductions when they first came out (not sure if they changed) they also were in a similar vein.

Re: impacts to 401k plans
« Reply #4 on: October 26, 2017, 10:34:21 AM »

Offline slamtheking

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This is one of the statements in the article that really had me beating my head against the wall.

"House Ways and Means Committee Chairman Kevin Brady (R) on Wednesday suggested that his upcoming tax bill could force changes to 401(k) plans and other retirement accounts, a move that would buck a promise from President Trump that those accounts would be left alone.

The Texas congressman, speaking at a breakfast hosted by the Christian Science Monitor, said, “We think in tax reform we can create incentives for people to save more and save sooner.”

Brady, who’s expected to introduce a tax bill next week, said he was “working very closely with the president” on the issue. He added that many people who have tax-incentivized retirement accounts contribute $200 per month or less, a level he thought was too low.

We think we can do better,” Brady said. “We are continuing discussions with the president, all focused on saving more and saving sooner.”


if they think $200 per month is too low for what people save, how is dropping the tax-free limit to just that amount going to incentivize people to save more?  it's counter-intuitive.    If they're "focused" on getting people to save more and save sooner, how is taxing the money they're saving helping (other than helping the rich keep more of their $)?

This is just infuriating to me.

I can only imagine what bombshell will come out next --> end of deductions for child care (credits) or ending mortgage interest deductions or possibly ending deductions for other taxes paid or charitable deductions. 

Re: impacts to 401k plans
« Reply #5 on: October 26, 2017, 10:43:02 AM »

Offline mef730

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Thus putting even more of a burden on Social Security...

Why on Earth would anyone take away incentives for individuals to save?

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Re: impacts to 401k plans
« Reply #6 on: October 26, 2017, 10:50:21 AM »

Offline Rondo2287

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What an absolutely horrible idea.  Who's brilliant idea was it to decimate pre-tax limits to cover up a revenue shortfall brought on by these tax cuts? 

So many people rely on these plans to build a large chunk of their retirements.  I hope those people who are blindly partisan realize how badly this could affect them.

To be honest its better for citizens in the long run to be pushed towards roth 401K's.  This is incredibly shortsighted for the government though, wanting taxes on 300K of income on the front end rather than 6,000,000 on the back end. 
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Re: impacts to 401k plans
« Reply #7 on: October 26, 2017, 11:15:47 AM »

Offline Fafnir

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What an absolutely horrible idea.  Who's brilliant idea was it to decimate pre-tax limits to cover up a revenue shortfall brought on by these tax cuts? 

So many people rely on these plans to build a large chunk of their retirements.  I hope those people who are blindly partisan realize how badly this could affect them.

To be honest its better for citizens in the long run to be pushed towards roth 401K's.  This is incredibly shortsighted for the government though, wanting taxes on 300K of income on the front end rather than 6,000,000 on the back end.
The 18k limit referenced being reduced applies to both Roth and Traditional 401ks in aggregate.

So yeah....

Re: impacts to 401k plans
« Reply #8 on: October 26, 2017, 11:28:07 AM »

Offline Surferdad

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I am less than 5 years from retirement and have a pretty nice nest-egg built up, but I need to continue to save as much as possible in these last 5 years.  So, this is an issue that hits home for me.  I AM READY TO MARCH IN THE STREETS TO OPPOSE THIS PLAN.


...Would really like to have Trump put his returns out there for everyone to see so they can analyze how much his tax situation improves based upon the changes he supports.
What a perfect opportunity to bring this up again!  That said, Orangeman is so "tone-deaf" he probably won't see the hypocrisy of hiding his taxes while proposing a new tax plan.

Re: impacts to 401k plans
« Reply #9 on: October 26, 2017, 11:29:21 AM »

Offline Rondo2287

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What an absolutely horrible idea.  Who's brilliant idea was it to decimate pre-tax limits to cover up a revenue shortfall brought on by these tax cuts? 

So many people rely on these plans to build a large chunk of their retirements.  I hope those people who are blindly partisan realize how badly this could affect them.

To be honest its better for citizens in the long run to be pushed towards roth 401K's.  This is incredibly shortsighted for the government though, wanting taxes on 300K of income on the front end rather than 6,000,000 on the back end.
The 18k limit referenced being reduced applies to both Roth and Traditional 401ks in aggregate.

So yeah....

Source on this impacting Roth?  all i see is pre-tax referenced.
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Re: impacts to 401k plans
« Reply #10 on: October 26, 2017, 11:40:12 AM »

Offline Fafnir

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What an absolutely horrible idea.  Who's brilliant idea was it to decimate pre-tax limits to cover up a revenue shortfall brought on by these tax cuts? 

So many people rely on these plans to build a large chunk of their retirements.  I hope those people who are blindly partisan realize how badly this could affect them.

To be honest its better for citizens in the long run to be pushed towards roth 401K's.  This is incredibly shortsighted for the government though, wanting taxes on 300K of income on the front end rather than 6,000,000 on the back end.
The 18k limit referenced being reduced applies to both Roth and Traditional 401ks in aggregate.

So yeah....

Source on this impacting Roth?  all i see is pre-tax referenced.
Its the same limit currently and I assumed they were cutting both based on the the first few arcticles I read that didn't have any details on roth accounts.

Just found an article I just read seemed to indicate this change would create a separate limit. Which makes this change even weirder and more short sighted.

Re: impacts to 401k plans
« Reply #11 on: October 26, 2017, 11:47:32 AM »

Offline bdm860

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I love my 401k, but I feel like so few people use it, and I would bet only a small percentage of those who do use it are taking full advantage of it.  I doubt most even know there is a limit or what the limit is.  A simple google search produces several articles talking about what a failure the 401k is. 

CNBC article from 2015:
Quote
You need to know this number: $18,433.

That's the median amount in a 401(k) savings account, according to a recent report by the Employee Benefit Research Institute. Almost 40 percent of employees have less than $10,000, even as the proportion of companies offering alternatives like defined benefit pensions continues to drop.

So is cutting the limit really going to do much?   Essentially a $4k-$5k tax increase for the few people actually maxing out their 401k, which are likely already upper middle class and above.  Or do you guys think more than that are really taking advantage of it?

Figure the triple tax advantage HSA would be an easier target (though even less take advantage of that, so less revenue to be had).  Upset about this 401k change, are you maxing that out first?

So I guess my taxes will go up a little and I'll just shift my investments somewhere else.  At least in my general brokerage account I have unlimited investment options and no restrictions, and some 401k's have terrible options anyway.

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Re: impacts to 401k plans
« Reply #12 on: October 26, 2017, 11:58:29 AM »

Offline Fafnir

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If they weren't cutting this solely to lower the mega riches taxes I wouldn't be nearly as annoyed bdm860.

This is being done to facilitate corporate tax lowering, estate tax elimination, pass through income allowance, and high end rate cuts.

Nothing to try and help the overall retirement issues you highlight, just making it harder for the sake of an extra pay for other cuts.
« Last Edit: October 26, 2017, 12:05:44 PM by Fafnir »

Re: impacts to 401k plans
« Reply #13 on: October 26, 2017, 12:05:42 PM »

Offline Rondo2287

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What an absolutely horrible idea.  Who's brilliant idea was it to decimate pre-tax limits to cover up a revenue shortfall brought on by these tax cuts? 

So many people rely on these plans to build a large chunk of their retirements.  I hope those people who are blindly partisan realize how badly this could affect them.

To be honest its better for citizens in the long run to be pushed towards roth 401K's.  This is incredibly shortsighted for the government though, wanting taxes on 300K of income on the front end rather than 6,000,000 on the back end.
The 18k limit referenced being reduced applies to both Roth and Traditional 401ks in aggregate.

So yeah....

Source on this impacting Roth?  all i see is pre-tax referenced.
Its the same limit currently and I assumed they were cutting both based on the the first few arcticles I read that didn't have any details on roth accounts.

Just found an article I just read seemed to indicate this change would create a separate limit. Which makes this change even weirder and more short sighted.

Roth isnt pre-tax, the only thing i have seen is related to pretax.  I also see several articles validating my point that this helps millenials and basically anybody under 60 saving for retirement if we usher people towards roth accounts. 
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Re: impacts to 401k plans
« Reply #14 on: October 26, 2017, 12:07:30 PM »

Offline Rondo2287

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I love my 401k, but I feel like so few people use it, and I would bet only a small percentage of those who do use it are taking full advantage of it.  I doubt most even know there is a limit or what the limit is.  A simple google search produces several articles talking about what a failure the 401k is. 

CNBC article from 2015:
Quote
You need to know this number: $18,433.

That's the median amount in a 401(k) savings account, according to a recent report by the Employee Benefit Research Institute. Almost 40 percent of employees have less than $10,000, even as the proportion of companies offering alternatives like defined benefit pensions continues to drop.

So is cutting the limit really going to do much?   Essentially a $4k-$5k tax increase for the few people actually maxing out their 401k, which are likely already upper middle class and above.  Or do you guys think more than that are really taking advantage of it?

Figure the triple tax advantage HSA would be an easier target (though even less take advantage of that, so less revenue to be had).  Upset about this 401k change, are you maxing that out first?

So I guess my taxes will go up a little and I'll just shift my investments somewhere else.  At least in my general brokerage account I have unlimited investment options and no restrictions, and some 401k's have terrible options anyway.


Yes the majority of people don't use their 401K's and it is a shame.  Especially when you consider the overwhelming debt the american people currently have between, consumer, car loans and student loans there is going to be a huge population of broke people in their retirement barely able to survive.
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