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Posted by on October 17, 2008, 8:08 am
House Democrats contemplate abolishing 401(k) tax breaks
http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20081012/REG/310139971
By Sara Hansard
October 12, 2008, 6:01 AM EST
Powerful House Democrats are eyeing proposals to overhaul the nation's
$3 trillion 401(k) system, including the elimination of most of the
$80 billion in annual tax breaks that 401(k) investors receive.
House Education and Labor Committee Chairman George Miller, D-Calif.,
and Rep. Jim McDermott, D-Wash., chairman of the House Ways and Means
Committee's Subcommittee on Income Security and Family Support, are
looking at redirecting those tax breaks to a new system of guaranteed
retirement accounts to which all workers would be obliged to
contribute.
A plan by Teresa Ghilarducci, professor of economic-policy analysis at
The New School for Social Research in New York, contains elements that
are being considered. She testified last week before Mr. Miller's
Education and Labor Committee on her proposal.
At that hearing, the director of the Congressional Budget Office,
Peter Orszag, testified that some $2 trillion in retirement savings
has been lost over the past 15 months.
Under Ms. Ghilarducci's plan, all workers would receive a $600 annual
inflation-adjusted subsidy from the U.S. government but would be
required to invest 5% of their pay into a guaranteed retirement
account administered by the Social Security Administration. The money
in turn would be invested in special government bonds that would pay
3% a year, adjusted for inflation.
The current system of providing tax breaks on 401(k) contributions and
earnings would be eliminated.
"I want to stop the federal subsidy of 401(k)s," Ms. Ghilarducci said
in an interview. "401(k)s can continue to exist, but they won't have
the benefit of the subsidy of the tax break."
Under the current 401(k) system, investors are charged relatively high
retail fees, Ms. Ghilarducci said.
<rest of article at link>
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Posted by joetaxpayer on October 17, 2008, 12:55 pm
beliavsky@aol.com wrote:
> The current system of providing tax breaks on 401(k) contributions and
> earnings would be eliminated.
>
> "I want to stop the federal subsidy of 401(k)s," Ms. Ghilarducci said
> in an interview. "401(k)s can continue to exist, but they won't have
> the benefit of the subsidy of the tax break."
>
> Under the current 401(k) system, investors are charged relatively high
> retail fees, Ms. Ghilarducci said.
Funny, when the market was screaming, and overpriced, they were talking
about putting social security into stocks. Now that we are off 50% from
the recent high, and we should be buying in, they want to kill the only
savings vehicle most of us have left.
(by 'they' I mean congress, I'm not pointing toward any particular
party. And I also reference that pensions have mostly gone away, so I'd
wish for higher limits on 401(k), not their elimination.)
Joe
www.blog.joetaxpayer.com
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Posted by on October 17, 2008, 1:40 pm
On Oct 17, 9:55 am, joetaxpayer
> Funny, when the market was screaming, and overpriced, they were talking
> about putting social security into stocks. Now that we are off 50% from
> the recent high, and we should be buying in, they want to kill the only
> savings vehicle most of us have left.
I hear you and tend to agree. I have not studied this thoroughly but a
few other impressions I would throw into the mix are:
1.
401(k) fees are higher. It makes sense to fight this.
2.
Social Security is going broke. This is some kind of fix for this, as
long as one believes in the notion of Social Security income yada in
the first place. Granted many do not.
3.
We are at record deficits. Taxes either have to go up or we have to
cut spending elsewhere to address Medicare, for one.
4.
I never liked that the contribution limits for a 401(k) were so much
higher than for an IRA.
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Posted by joetaxpayer on October 17, 2008, 2:25 pm
honda.lioness@gmail.com wrote:
> 1. 401(k) fees are higher. It makes sense to fight this.
Mine has a .05% expense for S&P index. Other funds not as great.
Employer matches first 5% dollar for dollar. I agree, and have written
about the high fees, esp for smaller companies.
> 2. Social Security is going broke. This is some kind of fix for this, as
> long as one believes in the notion of Social Security income yada in
> the first place. Granted many do not.
Wow, killing the 401(k) to save SS? Isn't this a 'throw the baby out
with the bath water' example? I know you don't support that this is the
fix, just that's it's proposed to be so.
> 3. We are at record deficits. Taxes either have to go up or we have to
> cut spending elsewhere to address Medicare, for one.
Cut pork. Cut all subsidies to tobacco companies or oil producers.
> 4. I never liked that the contribution limits for a 401(k) were so much
> higher than for an IRA.
We make too much to deduct the IRA deposit, and given our earnings, even
the current 401(k) limits are barely high enough to cover the amount we
need to save.
I think the retirement accounts are too many, each with their own rules.
They should all be combined to one set of accounts with pre or post tax
money, and all pre-tax deemed to be Roth money. I'd not even take a stab
at what fair limits are, but the 2009 numbers are out, $16,500 for
401(k) with $5,500 for age 50 catch-up.
Joe
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Posted by on October 17, 2008, 5:15 pm
On Oct 17, 1:40 pm, honda.lion...@gmail.com wrote:
>
> 3.
> We are at record deficits. Taxes either have to go up or we have to
> cut spending elsewhere to address Medicare, for one.
>
Nice to see you at least admit that this is nothing but a new tax to
enable the government to spend more money.
What is the guarantee that the government will not decide at some
future point to means-test or otherwise impair your withdrawals from
this "account". There is none.
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