The Money Mustache Community
Learning, Sharing, and Teaching => Taxes => Topic started by: krishnamba on November 10, 2017, 02:39:10 PM
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https://www.forbes.com/sites/ashleaebeling/2017/11/10/the-senate-401k-grab/#47fa6aa66360
The Senate tax cuts plan released last night has sneaky provisions that limit the amount workers can save for retirement. High earners would be prohibited from making $6,000 catch-up contributions to 401(k) workplace retirement plans. That lets the Senate say it isn’t targeting 401(k) deferrals, but it’s a huge grab out of the $24,000 high earners can put away today ($18,000 elective deferral and $6,000 catch-up). In addition, the Senate proposal targets government workers who have both a 457 retirement plan and a 401(k) plan. No matter how much they earn, they wouldn’t be able to save to the max in both plans anymore at one employer. And special catch-ups for 403(b) and 457 plans would be restricted too.
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That sounds way better than slashing it for the middle class.
I don't understand why they aren't targeting after tax contributions that end up rolled into Roth. I mean, why else would anyone make an after tax contribution other than a mega backdoor Roth?
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Yep. "Description of Proposal: Under the proposal, an employee may not make catch-up contributions for a year if the employee received wages of $500,000 or more for the preceding year."
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The catch-up contribution thing just doesn't seem like a big deal. That's something that approximately zero Mustachians should care about. Oh no, you can't deduct an extra $6,000 when you're over 50, earning half a million dollars per year, and somehow not retired yet.
Combining the 457 limit with the other plan limits so that public employees can't deduct $36k anymore sounds like something that would affect a lot more people on here. I have to say it's always seemed strange that you can do double retirement contributions if you work for certain government agencies. If I were king I'd take it a bit farther and eliminate all but one type of retirement account; there's no good reason for 401(k), 403(b), IRA, SEP, 457, etc. to all be things with their own little quirks. Just let everyone with a job put away money in the same kind of account with the same rules for everyone.
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Will admit; kinda bummed about the proposal for the 457/403(b). I finally paid off my student loans, plan to max out one of those next year and make progress on the second, then... *sigh*
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I'm opposed to any "classism" so am opposed to this unless they eliminate them across the board or keep them altogether. However, practically, I don't see much issue here. The principle of the thing, however, I am against.
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Just to add on because I haven't seen this talked about yet, but the text of the bill also adds early withdraw penalties to a 457. Would that make it exactly the same as a 403b or 401k then?
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The 457 early withdrawal penalty is going to hit us pretty hard. Our plan was to pull out some additional each year as needed from the 457 and treat it as an emergency fund. I suppose we need to save more in taxable accounts which I guess is the intent.
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The 457 early withdrawal penalty is going to hit us pretty hard. Our plan was to pull out some additional each year as needed from the 457 and treat it as an emergency fund. I suppose we need to save more in taxable accounts which I guess is the intent.
I say this all the time, but don't be irrationally scared away from the word "penalty." Not only does the IRS not call it that (it's an "early withdrawal tax"), but there should be no moral misgivings about paying it if that happens to be cheaper.
Adding the 10% tax to the picture does change the equation a bit, sure. However if you expect your tax bracket to go down by at least 10% when you retire, you're still probably better off paying it than saving in a taxable account instead. And as long as the strategies to get around paying it exist (Roth ladder, SEPP), you'll only be paying it for a little while anyway.
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Can someone clarify what the specific proposal is for people who have access to both a 403 and a 457?
My wife and I are teachers and each of us have access to both 403's and 457's. We maxed all four our this year for 72k total, and it has been our intention to do this each year going forward.
Our plan has been to live VERY frugally, and stache a ton away as our primary FIRE plan. Any changes to contributions limits would have a large impact on our plans for retirement.
Thanks!
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Here's the text itself. Retirement info starts on page 177. https://www.finance.senate.gov/imo/media/doc/11.9.17%20Chairman's%20Mark.pdf
For us, the hits just keep on coming; first the taxing of tuition for graduate assistants and fellows and then the proposed 457 changes (withdrawal tax and halving the contribution limits). I suppose at least it's a learning experience - never plan based on current law.
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No problem here from me. We can't keep sticking our head in the sand as a country when the rest of the world funds their government with higher individual taxes and lower corporate taxes
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No problem here from me. We can't keep sticking our head in the sand as a country when the rest of the world funds their government with higher individual taxes and lower corporate taxes
Too bad all this balloons the deficit instead of funding anything better.
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No problem here from me. We can't keep sticking our head in the sand as a country when the rest of the world funds their government with higher individual taxes and lower corporate taxes
Too bad all this balloons the deficit instead of funding anything better.
Well that's the second issue too...we view 50% of the population paying no income tax as an "entitlement". The government never takes entitlements away. Regardless of rates, the country collects about the same as a % of GDP. They keep giving stuff away and promising "the other person" will pay. I accepted this a long time ago and stopped getting angry about it. Hold fractional ownership in companies instead of cash, which will have its value inflated away.
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I just can't imagine the $6,000 catch-up election from people making over 500k is going to move the needle. As others have said for those making over 500k making post tax contributions and eventually converting to a Roth is likely a better option anyhow.
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Ugh. Well I'm happy I got at least a couple of years to max out both a 403b and 457. I agree there is no particular justification for why people with certain employers should get twice the maximum pre-tax savings space as people with other employers, but it was a sweet perk while it lasted. Given my state and local taxes, getting rid of double 403/457 contributions would/will work out to a cut in annual compensation of ~$6000/year in my case.
I hadn't seen this reported elsewhere so thanks for the heads-up krishnamba.
No problem here from me. We can't keep sticking our head in the sand as a country when the rest of the world funds their government with higher individual taxes and lower corporate taxes
Too bad all this balloons the deficit instead of funding anything better.
Well that's the second issue too...we view 50% of the population paying no income tax as an "entitlement". The government never takes entitlements away. Regardless of rates, the country collects about the same as a % of GDP. They keep giving stuff away and promising "the other person" will pay. I accepted this a long time ago and stopped getting angry about it. Hold fractional ownership in companies instead of cash, which will have its value inflated away.
Yup. Given our political system, there is no way our debt gets paid down or we even get back to a balanced budget where we're not continuing to add to the debt, so I figure at some point in my life I've going to live through a significant bout of inflation (much more likely) which will substantially reduce the value of old debts. Could be next year. Could be in 60 years. Don't try to time the market, just avoid having too much money invested in bonds or cash and whatever the future brings should be okay.
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And limit worrying about things that aren't in your sphere of control. Life got less stressful when I stopped working myself up over politics
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All this so that billionaire type rich people who don't have to work can pay less in taxes.
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None of the proposals in the OP's link bother me and I actually think they make a lot of sense. I have never understood why there are special rules for 403(b) and 457 plans and why you could max out both at the same time.
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The latest on this is that, as of this morning, they're planning on expanding catch-up contributions to $9000 per year BUT they have to be Roth contributions. It seems very weird and wouldn't affect that many Mustachians, but it's an encroachment nonetheless.
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An average suburbanite in their 50's has to be really pissed off about this catch up provision changes. This is precisely when a lot of those people realize they have to contribute more.
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Ugh. Well I'm happy I got at least a couple of years to max out both a 403b and 457. I agree there is no particular justification for why people with certain employers should get twice the maximum pre-tax savings space as people with other employers, but it was a sweet perk while it lasted. Given my state and local taxes, getting rid of double 403/457 contributions would/will work out to a cut in annual compensation of ~$6000/year in my case.
I hadn't seen this reported elsewhere so thanks for the heads-up krishnamba.
No problem here from me. We can't keep sticking our head in the sand as a country when the rest of the world funds their government with higher individual taxes and lower corporate taxes
Too bad all this balloons the deficit instead of funding anything better.
Well that's the second issue too...we view 50% of the population paying no income tax as an "entitlement". The government never takes entitlements away. Regardless of rates, the country collects about the same as a % of GDP. They keep giving stuff away and promising "the other person" will pay. I accepted this a long time ago and stopped getting angry about it. Hold fractional ownership in companies instead of cash, which will have its value inflated away.
Yup. Given our political system, there is no way our debt gets paid down or we even get back to a balanced budget where we're not continuing to add to the debt, so I figure at some point in my life I've going to live through a significant bout of inflation (much more likely) which will substantially reduce the value of old d
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And limit worrying about things that aren't in your sphere of control. Life got less stressful when I stopped working myself up over politics
People being worked up and calling their congress people does effect what bills are passed.
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An average suburbanite in their 50's has to be really pissed off about this catch up provision changes. This is precisely when a lot of those people realize they have to contribute more.
I thought this only affected high earners (earning $500k+ in the previous year). This really seems like a non issue. If anyone can afford to lose $6k of pre tax space it's people earning half a million a year.
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An average suburbanite in their 50's has to be really pissed off about this catch up provision changes. This is precisely when a lot of those people realize they have to contribute more.
I thought this only affected high earners (earning $500k+ in the previous year). This really seems like a non issue. If anyone can afford to lose $6k of pre tax space it's people earning half a million a year.
oh ok then.
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An average suburbanite in their 50's has to be really pissed off about this catch up provision changes. This is precisely when a lot of those people realize they have to contribute more.
I thought this only affected high earners (earning $500k+ in the previous year). This really seems like a non issue. If anyone can afford to lose $6k of pre tax space it's people earning half a million a year.
It’s a new amendment today from Hatch, different than what they were talking about last week. It would apply to everyone.
https://401kspecialistmag.com/hatch-proposes-mini-rothification-401ks-iras/#.WgoqkmhOmEd
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An average suburbanite in their 50's has to be really pissed off about this catch up provision changes. This is precisely when a lot of those people realize they have to contribute more.
I thought this only affected high earners (earning $500k+ in the previous year). This really seems like a non issue. If anyone can afford to lose $6k of pre tax space it's people earning half a million a year.
It’s a new amendment today from Hatch, different than what they were talking about last week. It would apply to everyone.
https://401kspecialistmag.com/hatch-proposes-mini-rothification-401ks-iras/#.WgoqkmhOmEd
That article mentioned an amendment changing tIRA to RIRA conversion rules. Anyone have details about that?
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An average suburbanite in their 50's has to be really pissed off about this catch up provision changes. This is precisely when a lot of those people realize they have to contribute more.
I thought this only affected high earners (earning $500k+ in the previous year). This really seems like a non issue. If anyone can afford to lose $6k of pre tax space it's people earning half a million a year.
It’s a new amendment today from Hatch, different than what they were talking about last week. It would apply to everyone.
https://401kspecialistmag.com/hatch-proposes-mini-rothification-401ks-iras/#.WgoqkmhOmEd
That article mentioned an amendment changing tIRA to RIRA conversion rules. Anyone have details about that?
Looks like he wants to eliminate recharacterizations.
https://www.cnbc.com/2017/11/13/senate-tax-tweak-would-curb-pretax-401k-catch-up-contributions.html (https://www.cnbc.com/2017/11/13/senate-tax-tweak-would-curb-pretax-401k-catch-up-contributions.html)
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Here's the text itself. Retirement info starts on page 177. https://www.finance.senate.gov/imo/media/doc/11.9.17%20Chairman's%20Mark.pdf
For us, the hits just keep on coming; first the taxing of tuition for graduate assistants and fellows and then the proposed 457 changes (withdrawal tax and halving the contribution limits). I suppose at least it's a learning experience - never plan based on current law.
Ok, first of all, great job for finding this and figuring out where the retirement info starts. Secondly, thanks for posting it.
However, I read pages 177-181, but I still don't get it. If any of you are able to clarify the proposed changes for me, I'd really appreciate it.
Here's my current situation:
- My wife and I both have access both a 403 and a 457.
- My wife and I max both of them out, so we shelter 72k/year through them.
What will and won't I be able to do through these accounts if the proposed bill actually passes?
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An average suburbanite in their 50's has to be really pissed off about this catch up provision changes. This is precisely when a lot of those people realize they have to contribute more.
I thought this only affected high earners (earning $500k+ in the previous year). This really seems like a non issue. If anyone can afford to lose $6k of pre tax space it's people earning half a million a year.
It’s a new amendment today from Hatch, different than what they were talking about last week. It would apply to everyone.
https://401kspecialistmag.com/hatch-proposes-mini-rothification-401ks-iras/#.WgoqkmhOmEd
All these shitty changes made so that rich people don't have to pay the estate tax, and large companies can have a lower tax rate even though they're already sheltering profits in the island of Jersey.
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An average suburbanite in their 50's has to be really pissed off about this catch up provision changes. This is precisely when a lot of those people realize they have to contribute more.
I thought this only affected high earners (earning $500k+ in the previous year). This really seems like a non issue. If anyone can afford to lose $6k of pre tax space it's people earning half a million a year.
It does seem
It’s a new amendment today from Hatch, different than what they were talking about last week. It would apply to everyone.
https://401kspecialistmag.com/hatch-proposes-mini-rothification-401ks-iras/#.WgoqkmhOmEd
All these shitty changes made so that rich people don't have to pay the estate tax, and large companies can have a lower tax rate even though they're already sheltering profits in the island of Jersey.
yeah, I will be paying more tax with today's change, but it's possible I will be thankful for having more post tax money down the road - who knows. Still, seems like the changes are mostly sticking it to people that work for a living and have decent wages.
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Here's the text itself. Retirement info starts on page 177. https://www.finance.senate.gov/imo/media/doc/11.9.17%20Chairman's%20Mark.pdf
For us, the hits just keep on coming; first the taxing of tuition for graduate assistants and fellows and then the proposed 457 changes (withdrawal tax and halving the contribution limits). I suppose at least it's a learning experience - never plan based on current law.
Ok, first of all, great job for finding this and figuring out where the retirement info starts. Secondly, thanks for posting it.
However, I read pages 177-181, but I still don't get it. If any of you are able to clarify the proposed changes for me, I'd really appreciate it.
Here's my current situation:
- My wife and I both have access both a 403 and a 457.
- My wife and I max both of them out, so we shelter 72k/year through them.
What will and won't I be able to do through these accounts if the proposed bill actually passes?
My understanding is the 18k limit will be applied to all plans in the aggregate. Therefore you and your wife will only be able to shelter a combined 36k. Also the overall aggregate limit is $54k for the 401(b). If your 403(b) allows after tax contributions your contributions to the 457 will count towards the $54k max.
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Here's the text itself. Retirement info starts on page 177. https://www.finance.senate.gov/imo/media/doc/11.9.17%20Chairman's%20Mark.pdf
For us, the hits just keep on coming; first the taxing of tuition for graduate assistants and fellows and then the proposed 457 changes (withdrawal tax and halving the contribution limits). I suppose at least it's a learning experience - never plan based on current law.
Ok, first of all, great job for finding this and figuring out where the retirement info starts. Secondly, thanks for posting it.
However, I read pages 177-181, but I still don't get it. If any of you are able to clarify the proposed changes for me, I'd really appreciate it.
Here's my current situation:
- My wife and I both have access both a 403 and a 457.
- My wife and I max both of them out, so we shelter 72k/year through them.
What will and won't I be able to do through these accounts if the proposed bill actually passes?
My understanding is the 18k limit will be applied to all plans in the aggregate. Therefore you and your wife will only be able to shelter a combined 36k. Also the overall aggregate limit is $54k for the 401(b). If your 403(b) allows after tax contributions your contributions to the 457 will count towards the $54k max.
Yikes. Ok, thank you. If you(anyone who knows the answer) don't mine me badgering for a few more specific questions, then...
1. Does that overall aggregate limit of 54k apply to each of us, or for both of us combined?
2. Would my/DW's Roth IRAs that we have set up with Vanguard (completely separate from my employer) count towards that 54k also?
If it's 54k each, then the plan would be something like:
Me
Roth IRA $5.5k
457 $18k
Roth 403B $18k
Total $41.5k
Wife
Roth IRA $5.5k
457 $18k
Roth 403B $18k
Total $41.5k
Total: 83K or 72k depending on the answer to my question above
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If it's 54k total, then maybe something like:
Me
Roth IRA $5.5k
457 $18k
Roth 403B $18k
Total $41.5k or 36k depending on the answer to my question above
Wife
Roth IRA $5.5k
457 $18k
Total 18k or 23.5k, depending on the answer to my question above
Total: 54k or 65k depending on whether the Roth IRA amount through vanguard counts towards the 54k
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Here's the text itself. Retirement info starts on page 177. https://www.finance.senate.gov/imo/media/doc/11.9.17%20Chairman's%20Mark.pdf
For us, the hits just keep on coming; first the taxing of tuition for graduate assistants and fellows and then the proposed 457 changes (withdrawal tax and halving the contribution limits). I suppose at least it's a learning experience - never plan based on current law.
Ok, first of all, great job for finding this and figuring out where the retirement info starts. Secondly, thanks for posting it.
However, I read pages 177-181, but I still don't get it. If any of you are able to clarify the proposed changes for me, I'd really appreciate it.
Here's my current situation:
- My wife and I both have access both a 403 and a 457.
- My wife and I max both of them out, so we shelter 72k/year through them.
What will and won't I be able to do through these accounts if the proposed bill actually passes?
My understanding is the 18k limit will be applied to all plans in the aggregate. Therefore you and your wife will only be able to shelter a combined 36k. Also the overall aggregate limit is $54k for the 401(b). If your 403(b) allows after tax contributions your contributions to the 457 will count towards the $54k max.
Yikes. Ok, thank you. If you(anyone who knows the answer) don't mine me badgering for a few more specific questions, then...
1. Does that overall aggregate limit of 54k apply to each of us, or for both of us combined?
2. Would my/DW's Roth IRAs that we have set up with Vanguard (completely separate from my employer) count towards that 54k also?
If it's 54k each, then the plan would be something like:
Me
Roth IRA $5.5k
457 $18k
Roth 403B $18k
Total $41.5k
Wife
Roth IRA $5.5k
457 $18k
Roth 403B $18k
Total $41.5k
Total: 83K or 72k depending on the answer to my question above
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If it's 54k total, then maybe something like:
Me
Roth IRA $5.5k
457 $18k
Roth 403B $18k
Total $41.5k or 36k depending on the answer to my question above
Wife
Roth IRA $5.5k
457 $18k
Total 18k or 23.5k, depending on the answer to my question above
Total: 54k or 65k depending on whether the Roth IRA amount through vanguard counts towards the 54k
My understanding of the previous posts was that the proposal would no longer allow you to put $18k in your 457 and another $18k in your Roth 403(b). You would be limited to a total of $18k across the pre-tax and Roth versions of the 457 and 403(b).
In addition there's a separate $54k limit that includes the $18k of pre-tax or Roth contributions, plus any employer matching or after-tax traditional contributions. You currently get a separate $54k limit for each plan just like you get a separate $18k limit for each plan, but the proposal would make it so that the combined limit for both plans put together would be $54k.
I didn't read anything about combining limits across married couples. I expect you would each have your own $18k/$54k limits going forward.
I also didn't read anything about changes to IRAs. You would still be able to contribute to IRAs as you do today.
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Here's the text itself. Retirement info starts on page 177. https://www.finance.senate.gov/imo/media/doc/11.9.17%20Chairman's%20Mark.pdf
For us, the hits just keep on coming; first the taxing of tuition for graduate assistants and fellows and then the proposed 457 changes (withdrawal tax and halving the contribution limits). I suppose at least it's a learning experience - never plan based on current law.
Ok, first of all, great job for finding this and figuring out where the retirement info starts. Secondly, thanks for posting it.
However, I read pages 177-181, but I still don't get it. If any of you are able to clarify the proposed changes for me, I'd really appreciate it.
Here's my current situation:
- My wife and I both have access both a 403 and a 457.
- My wife and I max both of them out, so we shelter 72k/year through them.
What will and won't I be able to do through these accounts if the proposed bill actually passes?
My understanding is the 18k limit will be applied to all plans in the aggregate. Therefore you and your wife will only be able to shelter a combined 36k. Also the overall aggregate limit is $54k for the 401(b). If your 403(b) allows after tax contributions your contributions to the 457 will count towards the $54k max.
Yikes. Ok, thank you. If you(anyone who knows the answer) don't mine me badgering for a few more specific questions, then...
1. Does that overall aggregate limit of 54k apply to each of us, or for both of us combined?
2. Would my/DW's Roth IRAs that we have set up with Vanguard (completely separate from my employer) count towards that 54k also?
If it's 54k each, then the plan would be something like:
Me
Roth IRA $5.5k
457 $18k
Roth 403B $18k
Total $41.5k
Wife
Roth IRA $5.5k
457 $18k
Roth 403B $18k
Total $41.5k
Total: 83K or 72k depending on the answer to my question above
--------------------------------
If it's 54k total, then maybe something like:
Me
Roth IRA $5.5k
457 $18k
Roth 403B $18k
Total $41.5k or 36k depending on the answer to my question above
Wife
Roth IRA $5.5k
457 $18k
Total 18k or 23.5k, depending on the answer to my question above
Total: 54k or 65k depending on whether the Roth IRA amount through vanguard counts towards the 54k
My understanding of the previous posts was that the proposal would no longer allow you to put $18k in your 457 and another $18k in your Roth 403(b). You would be limited to a total of $18k across the pre-tax and Roth versions of the 457 and 403(b).
In addition there's a separate $54k limit that includes the $18k of pre-tax or Roth contributions, plus any employer matching or after-tax traditional contributions. You currently get a separate $54k limit for each plan just like you get a separate $18k limit for each plan, but the proposal would make it so that the combined limit for both plans put together would be $54k.
I didn't read anything about combining limits across married couples. I expect you would each have your own $18k/$54k limits going forward.
I also didn't read anything about changes to IRAs. You would still be able to contribute to IRAs as you do today.
Thanks Seattle, Ok, then what I don't get is this...what is a path that gets me to 54K? I mean, If I can't put 18k in the 403 and another 18k into a 457, then how do I get get there. I mean, what's the point of the government saying I can put up to 54k, if they don't give me any buckets to put the 54k in? What are my damn buckets, haha:)
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All this so that billionaire type rich people who don't have to work can pay less in taxes.
How do you really feel? You're on a message board with wealthier than average people, ranting about rich people? Life's short, please go enjoy life. Making the same posts over and over on message boards gets old
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All this so that billionaire type rich people who don't have to work can pay less in taxes.
How do you really feel? You're on a message board with wealthier than average people, ranting about rich people? Life's short, please go enjoy life. Making the same posts over and over on message boards gets old
It's not old to me because these tax law changes affects my taxes as it does most of the people on here. Not talking about it is the mistake.
Being wealthier than average is not the same as being a billionaire who stands to gain millions from not having an estate tax, or a lowered tax rate through pass through income, etc.
What we see here is basically class warfare, the super rich really taking advantage of their power through the Republican controlled Congress.
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Accept my apology, I'm just really cynical about both sides and their ability/willingness to actually fix anything. They both really suck and I give this less than a zero % chance of this happening.
The government runs a deficit every year, but neither side will actually make a move there because it involves meaningful higher taxes for all individuals given that we run a deficit in every year (minus that late 90s tech bubble).
Every time tax "reform" comes up, it just results in the winners and losers yelling at each other. Our tax code is so chocked full of entitlements you can always find the loser and give them a microphone with a willing reporter.
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Well that's the second issue too...we view 50% of the population paying no income tax as an "entitlement".
Don't forget the 15% for FICA taxes (half visible to you, the other half not) that applies starting with the very first dollar you earn. It might help to think of, say, the 10% bracket as the second tax bracket, not the first. And it's actually 25%. Similarly, the 25% bracket is in truth a 40% bracket. Since FICA taxes have upper income limits, the top tax bracket is actually only slightly over 40%, so that effectively the tax structure is flat once you get to the nominal 25% bracket. There is also preferred treatment of investment income, even if taxed at "ordinary" rates (which is fine).
I was hoping that tax reform would combine these taxes into one simple, transparent structure. This would cut the overhead of administering these various taxes and make it much clearer what we're actually paying. I'm surprised this was not considered. It's a little disappointing that whoever wrote the tax plan didn't think outside the box. For example, I would have liked to see the introduction of a national sales tax (something like the Fair Tax) to replace part of income taxes, so that consumption is taxed more and earnings taxed less.
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Well that's the second issue too...we view 50% of the population paying no income tax as an "entitlement".
Don't forget the 15% for FICA taxes (half visible to you, the other half not) that applies starting with the very first dollar you earn. It might help to think of, say, the 10% bracket as the second tax bracket, not the first. And it's actually 25%. Similarly, the 25% bracket is in truth a 40% bracket. Since FICA taxes have upper income limits, the top tax bracket is actually only slightly over 40%, so that effectively the tax structure is flat once you get to the nominal 25% bracket. There is also preferred treatment of investment income, even if taxed at "ordinary" rates (which is fine).
I was hoping that tax reform would combine these taxes into one simple, transparent structure. This would cut the overhead of administering these various taxes and make it much clearer what we're actually paying. I'm surprised this was not considered. It's a little disappointing that whoever wrote the tax plan didn't think outside the box. For example, I would have liked to see the introduction of a national sales tax (something like the Fair Tax) to replace part of income taxes, so that consumption is taxed more and earnings taxed less.
Once you consider the effect of self employment taxes, a person making ~$40,000-$120,000/year (25% tax bracket and a bit of the 28% tax bracket + 15.3% self employment (payroll) tax), has a higher marginal tax rate than someone who makes $120,000-~$420,000. (28%, 33% and 35% brackets + 2.9% or 3.8% self employment tax).
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Well that's the second issue too...we view 50% of the population paying no income tax as an "entitlement".
Don't forget the 15% for FICA taxes (half visible to you, the other half not) that applies starting with the very first dollar you earn. It might help to think of, say, the 10% bracket as the second tax bracket, not the first. And it's actually 25%. Similarly, the 25% bracket is in truth a 40% bracket. Since FICA taxes have upper income limits, the top tax bracket is actually only slightly over 40%, so that effectively the tax structure is flat once you get to the nominal 25% bracket. There is also preferred treatment of investment income, even if taxed at "ordinary" rates (which is fine).
I was hoping that tax reform would combine these taxes into one simple, transparent structure. This would cut the overhead of administering these various taxes and make it much clearer what we're actually paying. I'm surprised this was not considered. It's a little disappointing that whoever wrote the tax plan didn't think outside the box. For example, I would have liked to see the introduction of a national sales tax (something like the Fair Tax) to replace part of income taxes, so that consumption is taxed more and earnings taxed less.
I get that. I also get that the 35% corporate tax rate that all of the domestic corporations (yeah yeah, I'm waiting for the screaming response of multinational corporate tax shelters) pay increases the cost of goods to consumers. Grocery stores, financial services companies, insurance companies, restaurants are all domestic and pay the full corporate tax rate.
Tax Reform is impossible...if taxes paid are transparent, everyone realizes they are paying more. The lower-middle class have the power of the microphone, media, and populist politicians. The high income earners and corporate welfare recipients have lobbyists.
All I can do is save as much as I can, live on a lower income, donate my nest egg to charity, and opt out of all this BS
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I get that. I also get that the 35% corporate tax rate that all of the domestic corporations (yeah yeah, I'm waiting for the screaming response of multinational corporate tax shelters) pay increases the cost of goods to consumers.
I've looked at the financial statements of corporations like Apple and others and they don't pay 35% of net income as federal taxes. Instead they have a team of accountants and lawyers that have successfully devised ways to avoid the corporate tax rates. The same goes for most other corporations.
If you look at the income statement, balance sheet, as well as read the notes of the financial statements you can find out that the 35% corporate tax rate is a fiction, and cutting taxes is a solution that hasn't found a problem.
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Catch up contributions won't be changed after all:
http://www.thinkadvisor.com/2017/11/16/senate-tax-cut-bill-no-longer-taxes-401k-catch-up
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I get that. I also get that the 35% corporate tax rate that all of the domestic corporations (yeah yeah, I'm waiting for the screaming response of multinational corporate tax shelters) pay increases the cost of goods to consumers.
I've looked at the financial statements of corporations like Apple and others and they don't pay 35% of net income as federal taxes. Instead they have a team of accountants and lawyers that have successfully devised ways to avoid the corporate tax rates. The same goes for most other corporations.
If you look at the income statement, balance sheet, as well as read the notes of the financial statements you can find out that the 35% corporate tax rate is a fiction, and cutting taxes is a solution that hasn't found a problem.
Its easy to reference the likes of GE, Apple, or a Pharmaceutical Company and say "most companies". Our high tax rate combined with a lack of territorial tax treatment gives an incentive for multinationals to leave earnings overseas.
I wholeheartedly disagree with your assessment of "most companies". That's just ignoring facts to attempt to validate your opinions. What about the domestic companies? Where do people in the US buy food and goods?
Effective Tax Rates last year:
Walmart: 29%-32%
Costco: 34.4%
Target: 32%
Kroger: 32.8%
Where do they get financial services:
Big 4 Banks: 22-29% (due to international business)
Domestic Banks: 30% - 33%
I also invest in US based mid and small cap companies. They all seem to pay that 30-35% rate on financials. What am I missing?
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I get that. I also get that the 35% corporate tax rate that all of the domestic corporations (yeah yeah, I'm waiting for the screaming response of multinational corporate tax shelters) pay increases the cost of goods to consumers.
I've looked at the financial statements of corporations like Apple and others and they don't pay 35% of net income as federal taxes. Instead they have a team of accountants and lawyers that have successfully devised ways to avoid the corporate tax rates. The same goes for most other corporations.
If you look at the income statement, balance sheet, as well as read the notes of the financial statements you can find out that the 35% corporate tax rate is a fiction, and cutting taxes is a solution that hasn't found a problem.
The 35% corporate tax rate is a very real thing. However we all that the tax rate does not equal the effective rate. Since you referenced Apple, in their 2017 10-K they outline why their tax rates differ.
The Company’s effective tax rates for 2017, 2016 and 2015 differ from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings, a substantial portion of which was generated by subsidiaries organized in Ireland, for which no U.S. taxes are provided when such earnings are intended to be indefinitely reinvested outside the U.S. The lower effective tax rate in 2017 compared to 2016 was due to a different geographic mix of earnings and higher U.S. R&D tax credits. The lower effective tax rate in 2016 compared to 2015 was due primarily to greater R&D tax credits.
2017 - 24.6%, 2016 - 25.6%, 2015 - 26.4%
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Then the shareholders of Apple pay another 15% after earnings are distributed as dividends, so the effective tax rate to the shareholder is a hefty ticket all in.
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Then the shareholders of Apple pay another 15% after earnings are distributed as dividends, so the effective tax rate to the shareholder is a hefty ticket all in.
Well with that argument you could make that case about all taxation.
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I get that. I also get that the 35% corporate tax rate that all of the domestic corporations (yeah yeah, I'm waiting for the screaming response of multinational corporate tax shelters) pay increases the cost of goods to consumers.
I've looked at the financial statements of corporations like Apple and others and they don't pay 35% of net income as federal taxes. Instead they have a team of accountants and lawyers that have successfully devised ways to avoid the corporate tax rates. The same goes for most other corporations.
If you look at the income statement, balance sheet, as well as read the notes of the financial statements you can find out that the 35% corporate tax rate is a fiction, and cutting taxes is a solution that hasn't found a problem.
Its easy to reference the likes of GE, Apple, or a Pharmaceutical Company and say "most companies". Our high tax rate combined with a lack of territorial tax treatment gives an incentive for multinationals to leave earnings overseas.
I wholeheartedly disagree with your assessment of "most companies". That's just ignoring facts to attempt to validate your opinions. What about the domestic companies? Where do people in the US buy food and goods?
Effective Tax Rates last year:
Walmart: 29%-32%
Costco: 34.4%
Target: 32%
Kroger: 32.8%
Where do they get financial services:
Big 4 Banks: 22-29% (due to international business)
Domestic Banks: 30% - 33%
I also invest in US based mid and small cap companies. They all seem to pay that 30-35% rate on financials. What am I missing?
The effective tax rates you list are not entirely accurate. I just looked at the 2017 cash flow statement for Walmart, and it shows that Walmart paid about 22% of net operating income in taxes, not the 29-32%. The 29-32% are the GAAP percentages of tax rates, based on the income statement. These higher tax rates don't take into account that there are tax deferred assets and other mechanisms by which the actual dollars being paid for taxes is lower, and not the same as the income statement.
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I'm looking forward to market gains after we finally decrease corporate taxes from obscene to excessive.
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Here's the text itself. Retirement info starts on page 177. https://www.finance.senate.gov/imo/media/doc/11.9.17%20Chairman's%20Mark.pdf
For us, the hits just keep on coming; first the taxing of tuition for graduate assistants and fellows and then the proposed 457 changes (withdrawal tax and halving the contribution limits). I suppose at least it's a learning experience - never plan based on current law.
Ok, first of all, great job for finding this and figuring out where the retirement info starts. Secondly, thanks for posting it.
However, I read pages 177-181, but I still don't get it. If any of you are able to clarify the proposed changes for me, I'd really appreciate it.
Here's my current situation:
- My wife and I both have access both a 403 and a 457.
- My wife and I max both of them out, so we shelter 72k/year through them.
What will and won't I be able to do through these accounts if the proposed bill actually passes?
This would absolutely suck for me. I'm single and I've just started maxing out my 403b and moving into my 457. I don't know why some employees have this double tax advantage, nor do I know why some employees get a free gym membership or access to a corporate car or whatever. I was just very happy to have the perk (government workers don't have that many) and worked hard to maximize it, same as anyone else. And it's hard on a gov't salary for a single person to sock away $36K of income and I actively sweat over my spreadsheets planning my next tax year and how to creep my savings rate up one or two percent to ensure my future. So while it seems 'unfair' that some career paths come with a different set of perks, to me it was a matter of choosing whether that perk was more important to you than a high salary, and choosing your employer accordingly. Yeah it would be NICE to have a high paying job or self employment plus double retirement accounts, but those career choices come with a different set of perks. It sucks to me to plan hard for career and savings based on a set of financial circumstances that can disappear tomorrow.
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Here's the text itself. Retirement info starts on page 177. https://www.finance.senate.gov/imo/media/doc/11.9.17%20Chairman's%20Mark.pdf
For us, the hits just keep on coming; first the taxing of tuition for graduate assistants and fellows and then the proposed 457 changes (withdrawal tax and halving the contribution limits). I suppose at least it's a learning experience - never plan based on current law.
Ok, first of all, great job for finding this and figuring out where the retirement info starts. Secondly, thanks for posting it.
However, I read pages 177-181, but I still don't get it. If any of you are able to clarify the proposed changes for me, I'd really appreciate it.
Here's my current situation:
- My wife and I both have access both a 403 and a 457.
- My wife and I max both of them out, so we shelter 72k/year through them.
What will and won't I be able to do through these accounts if the proposed bill actually passes?
This would absolutely suck for me. I'm single and I've just started maxing out my 403b and moving into my 457. I don't know why some employees have this double tax advantage, nor do I know why some employees get a free gym membership or access to a corporate car or whatever. I was just very happy to have the perk (government workers don't have that many) and worked hard to maximize it, same as anyone else. And it's hard on a gov't salary for a single person to sock away $36K of income and I actively sweat over my spreadsheets planning my next tax year and how to creep my savings rate up one or two percent to ensure my future. So while it seems 'unfair' that some career paths come with a different set of perks, to me it was a matter of choosing whether that perk was more important to you than a high salary, and choosing your employer accordingly. Yeah it would be NICE to have a high paying job or self employment plus double retirement accounts, but those career choices come with a different set of perks. It sucks to me to plan hard for career and savings based on a set of financial circumstances that can disappear tomorrow.
Yeah, the part that I think is the shadiest is if they don't grandfather in money already contributed to 457's. I mean, the main reason to shelter in the 457 was because I was told by federal law that I would be able to access it as soon as I retired. My wife and I now have about 35k in 457s. Even if I didn't contribute another dime, that would likely be 100k when I'm 48. That is what we planned to use for our kids college costs.
It's one thing to say, ok, this is the new rule going forward, but another thing to say, ok, you intentionally put this money here because we explicitly said you could access it, but fuck you, it's already there and now you can't access it until you are 59.5 years old.
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So I guess the 457 changes are still on the table with the Senate's proposed plan ?
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SeattleCyclone or anyone else who is super tax knowledgeable, here is my current situation
Irrevocable 403b $38k
457b $15k
now, my 403b has an upper limit of $54k, so I'm assuming I could just move all my contributions over to it, right? The real ass kicker is my employer only gives matching funds on $$ put into my 457 and it looks like I'll be prevented from doing it entirely if my 403b limit has already surpassed it (and I am prevented from ever changing the election amount unless I quit).
Any thoughts on this?
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SeattleCyclone or anyone else who is super tax knowledgeable, here is my current situation
Irrevocable 403b $38k
457b $15k
now, my 403b has an upper limit of $54k, so I'm assuming I could just move all my contributions over to it, right? The real ass kicker is my employer only gives matching funds on $$ put into my 457 and it looks like I'll be prevented from doing it entirely if my 403b limit has already surpassed it (and I am prevented from ever changing the election amount unless I quit).
Any thoughts on this?
Where are those $38k and $15k coming from? Your own pre-tax and Roth contributions across both plans would be limited to a total of $18k. That plus employer contributions and after-tax traditional contributions would be limited to a total of $54k. Right now you have $53k going into the two plans, so you would be safe on the overall limit. If at least $35k of that is coming from your employer you might not need to change a thing.
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Here's the text itself. Retirement info starts on page 177. https://www.finance.senate.gov/imo/media/doc/11.9.17%20Chairman's%20Mark.pdf
For us, the hits just keep on coming; first the taxing of tuition for graduate assistants and fellows and then the proposed 457 changes (withdrawal tax and halving the contribution limits). I suppose at least it's a learning experience - never plan based on current law.
Wow, thanks for pointing this out! The text at the top of page 179 says:
"The proposal applies a single aggregate limit to contributions for an employee in a
governmental section 457(b) plan and elective deferrals for the same employee under a section
401(k) plan or a 403(b) plan of the same employer. Thus, the limit for governmental section
457(b) plans is coordinated with the limit for section 401(k) and 403(b) plans in the same manner
as the limits are coordinated under present law for elective deferrals to section 401(k) and
section 403(b) plans. "
I have been lucky enough to work for an organization that offers both a 403(b) and 457(b) plan. As a Mustachian, I have been loading them to the hilt every year, and celebrated turning 50 by contributing the extra $6000 catch-up contribution to each. If they pass this (I guess they have passed it) then I will retire next year rather than lose the ability to make those contributions. I have been waffling on retiring next year or not - this definitely makes the decision for me.
As long as they don't also get rid of the "Rule of 55" (I am 55 now).
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SeattleCyclone or anyone else who is super tax knowledgeable, here is my current situation
Irrevocable 403b $38k
457b $15k
now, my 403b has an upper limit of $54k, so I'm assuming I could just move all my contributions over to it, right? The real ass kicker is my employer only gives matching funds on $$ put into my 457 and it looks like I'll be prevented from doing it entirely if my 403b limit has already surpassed it (and I am prevented from ever changing the election amount unless I quit).
Any thoughts on this?
Where are those $38k and $15k coming from? Your own pre-tax and Roth contributions across both plans would be limited to a total of $18k. That plus employer contributions and after-tax traditional contributions would be limited to a total of $54k. Right now you have $53k going into the two plans, so you would be safe on the overall limit. If at least $35k of that is coming from your employer you might not need to change a thing.
Technically it's all my money, and my employer puts 3% into my 401a based off what I put into my 457b. That would put me over the limit if they are counting employer contributions towards the $54k. I tried googling a better way of describing it - an irrevocable election, and I saw some sorts of comments that lead me to believe it may be treated as my employer paying it to me instead of me deferring it? My employer also lets me put $$ into the 403b, which makes it seem like I am not the person putting into the irrevocable plan. I can't quite tell
https://benefitslink.com/boards/index.php?/topic/10686-one-time-irrevocable-election/
It really sucks if this does read this way as it will significantly raise the amount of time I have to work. This if my first year with this employer and I had looked forward to being able to utilize this benefit and only work < 10 years.
I think the confusing part is that there's going to be a Jan 31 paycheck coming with this deduction on it and no one is going to know what to do. The paper I signed says I can't change it unless I quit. Wtf.
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Here's the text itself. Retirement info starts on page 177. https://www.finance.senate.gov/imo/media/doc/11.9.17%20Chairman's%20Mark.pdf
For us, the hits just keep on coming; first the taxing of tuition for graduate assistants and fellows and then the proposed 457 changes (withdrawal tax and halving the contribution limits). I suppose at least it's a learning experience - never plan based on current law.
Wow, thanks for pointing this out! The text at the top of page 179 says:
"The proposal applies a single aggregate limit to contributions for an employee in a
governmental section 457(b) plan and elective deferrals for the same employee under a section
401(k) plan or a 403(b) plan of the same employer. Thus, the limit for governmental section
457(b) plans is coordinated with the limit for section 401(k) and 403(b) plans in the same manner
as the limits are coordinated under present law for elective deferrals to section 401(k) and
section 403(b) plans. "
I have been lucky enough to work for an organization that offers both a 403(b) and 457(b) plan. As a Mustachian, I have been loading them to the hilt every year, and celebrated turning 50 by contributing the extra $6000 catch-up contribution to each. If they pass this (I guess they have passed it) then I will retire next year rather than lose the ability to make those contributions. I have been waffling on retiring next year or not - this definitely makes the decision for me.
As long as they don't also get rid of the "Rule of 55" (I am 55 now).
I'm glad you've been able to get the benefit for it for a while.
I'm 34 and my wife is 33. This year was the first time maxing for us. We each filled both for 72k. We have paired down our expenses tremendously so that we could do this for 2 or 3 more years and jump start our investing career. Doesn't look like that's going to be able to happen as planned now.
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This change does not appear in the version that passed the senate (which had lots of changes from the draft text). It is also not in the version that passed the house.
We need to see what passes into law, but for now it looks like this change was dropped.
Here is the one that passed the Senate: https://assets.bwbx.io/documents/users/iqjWHBFdfxIU/rXqXuQfYbRas/v0
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I can't understand the legalese language very well, so can someone smarter than me summarize whether 457b + 403b are now sharing the $18,500 annual limit in the new tax bill? If that's the change written about in the above post, apologies (we have a couple of changes in play in this thread, so just making sure).
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I can't understand the legalese language very well, so can someone smarter than me summarize whether 457b + 403b are now sharing the $18,500 annual limit in the new tax bill? If that's the change written about in the above post, apologies (we have a couple of changes in play in this thread, so just making sure).
From what I understand, there will be a single limit for all types of accounts. I do believe the Senate version still allows the 50+ catch up provision.
I'm really hoping it does not go through, as I contribute to both right now.
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I max out my 401k, and I also put as much in my 457 as I can. I sure hope I can continue to do that. Can't believe we have to sacrifice for these super rich people so that they don't have to pay as much taxes.
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Due to some confusion on my part about whether the 457's will emerge unchanged in the new tax legislation working its way through conference, I've put a hold on my contributions effective 12/31. My deferred comp administrator is slow to implement contribution changes and I don't want any money to end up in the plan in 2018 if the IRS is now going to group the total contribution limit of our 401/403 with the 457 limit (capping total at $18,500). If it turns out 457's aren't impacted by the new legislation, there's always time to max out contributions over the duration of the year.
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As of right now, pending some hand-written scrawl somewhere in this 500-page boondoggle, the Senate version continues to allow 457b contributions independent of 401k contributions.
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It doesn't sound like this is going to attach the private sector version of a 457 for me, commonly known as a rabbi trust. That would make sense because its technically an asset of the company I work for and they pay taxes on the earnings at the corporate level.
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I'm looking forward to market gains after we finally decrease corporate taxes from obscene to excessive.
Those gains are already priced in.
Also please note the market gains during the entire time period when corporate taxes were "excessive".
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I'm looking forward to market gains after we finally decrease corporate taxes from obscene to excessive.
Those gains are already priced in.
Also please note the market gains during the entire time period when corporate taxes were "excessive".
The market seems more worried about Mueller than excited about tax reform at the moment.
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As of right now, pending some hand-written scrawl somewhere in this 500-page boondoggle, the Senate version continues to allow 457b contributions independent of 401k contributions.
According to Planadvisor.com https://www.planadviser.com/tax-bill-passed-senate-backs-off-457b-403b-plan-changes/ (https://www.planadviser.com/tax-bill-passed-senate-backs-off-457b-403b-plan-changes/)
The last minute changes to the bill included removing the tampering to 457 plans.
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Thanks for posting that! It was very helpful.
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As of right now, pending some hand-written scrawl somewhere in this 500-page boondoggle, the Senate version continues to allow 457b contributions independent of 401k contributions.
According to Planadvisor.com https://www.planadviser.com/tax-bill-passed-senate-backs-off-457b-403b-plan-changes/ (https://www.planadviser.com/tax-bill-passed-senate-backs-off-457b-403b-plan-changes/)
The last minute changes to the bill included removing the tampering to 457 plans.
Be still my beating heart.
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Still a terrible Bill IMO, but I'm glad things are looking positive for continuing 403 and 457 contributions.
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Still a terrible Bill IMO, but I'm glad things are looking positive for continuing 403 and 457 contributions.
Yes it's still terrible. If I read this correctly, the bill will cut Medicare and Medicaid. I can't believe they're going to do that.
"And she wanted congressional leaders to promise to undo the Medicare cuts automatically triggered by the deficit increase from the tax cut."
Susan Collins and the Duping of Centrists
https://nyti.ms/2jEKxpK
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You can thank Susan Collins for saving this provision, and she'll fight to keep it during reconciliation.
http://www.cnn.com/2017/12/10/politics/susan-collins-tax-reform-vote/index.html
"One of the amendments she added would allow a deduction for property taxes, another would allow a provision protecting retirement benefits for employees of charities and local governments, and another would be a medical expense deduction."
Philosophically, I personally would like to see a universal limit for pre-tax retirement savings, but I'd like it to be higher. Why 5,500 for an IRA and 18,000 for 401k? Not everyone has a 401k. And why do some lucky people also get this 457b? Can others be given access to it? (It would probably cost too much.)
Taking off the philosophical hat.... I'm maxing out a 457b and 403b for as long as I'm allowed to, and really happy about that!
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You can thank Susan Collins for saving this provision, and she'll fight to keep it during reconciliation.
http://www.cnn.com/2017/12/10/politics/susan-collins-tax-reform-vote/index.html
Good idea, I just sent her a thank you email a moment ago.
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Alright, I've read via the Washington Post that there will be no changes made to 401k or 403b or 457 accounts in the final version of the tax bill, but I don't want to read the 505 page document.
Can anyone confirm that we are in the free and clear at least on this front?
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Alright, I've read via the Washington Post that there will be no changes made to 401k or 403b or 457 accounts in the final version of the tax bill, but I don't want to read the 505 page document.
Can anyone confirm that we are in the free and clear at least on this front?
According to https://www.nytimes.com/2017/12/16/your-money/tax-plan-changes.html (https://www.nytimes.com/2017/12/16/your-money/tax-plan-changes.html):
WHAT HAS BEEN LEFT UNCHANGED
...
401(K) TAX BREAK
Before the House and Senate introduced their bills, there were rumors they might try to restrict the amount of pretax money that people could put into their workplace savings accounts. They did not try to do this, though, and the rules for these accounts remain the same.
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Can anyone confirm that we are in the free and clear at least on this front?
Yes, still no changes to 457s.
You don't have to read it all, just skim the section on retirement plan changes. I confirmed there was nothing about combining the limits. This section seems to be the same as the senate version that was passed, but I didn't compare in detail.
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I know it's a "win" to keep a lot of these provisions, but now it's turning into even more of a shit show where we cut revenue with no way to make up for it.
It was already going to be a disaster because any honest intellectual already knows that nothing actually "trickles down".
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I'm glad they left 401k's alone. I know I'm an outlier in saying this, but I'm looking forward to this bill. I recently had a child so the extra $1000 is huge to me and according to taxplancalculator.com my family is saving about $6000 a year.
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There are going to be winners and losers to this new tax plan.
There will also be loopholes that people will jump through to create "pass through income" in order to qualify for the deduction.