Author Topic: Why is the Roth 401k limit 18k?  (Read 5360 times)

tetlee

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Why is the Roth 401k limit 18k?
« on: March 30, 2016, 10:38:11 AM »
So the traditional and roth 401k are limited to 18k a year.

However, with the Traditional you can make after tax contributions to get you to 55k. then roll over the extra contributions to a Roth...

So why arent the Roth personal limits just 55k?

Ursus Major

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Re: Why is the Roth 401k limit 18k?
« Reply #1 on: March 30, 2016, 10:42:43 AM »
So the traditional and roth 401k are limited to 18k a year.

However, with the Traditional you can make after tax contributions to get you to 55k. then roll over the extra contributions to a Roth...

So why arent the Roth personal limits just 55k?

Short answer: Because that's how the law is written. Reason and logic does not apply in these matters. ;(

forummm

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Re: Why is the Roth 401k limit 18k?
« Reply #2 on: March 30, 2016, 04:44:49 PM »
Congress wants to limit the amount of money you can shield from taxes. And different provisions of the law were written at different times by different people and then crafted into compromises to get majorities of 535 people to vote for it. It's not surprising that the giant tax code is riddled with inconsistencies or things that don't make a lot of sense.

boarder42

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Re: Why is the Roth 401k limit 18k?
« Reply #3 on: March 30, 2016, 06:14:28 PM »
Why are there tax brackets ?
Why don't we use a simple sales tax?
Why does social security exist?
Why are we required to carry Heath insurance?
Why do we have socialist programs?
Why do you have to be 35 to be President?
Why is online sports betting illegal?

nereo

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Re: Why is the Roth 401k limit 18k?
« Reply #4 on: March 30, 2016, 06:42:49 PM »
Why are there tax brackets ?
Why don't we use a simple sales tax?
Why does social security exist?
Why are we required to carry Heath insurance?
Why do we have socialist programs?
Why do you have to be 35 to be President?
Why is online sports betting illegal?
whoa whoa whoa.... this is going to take a lot more threads...

Or: because Congress said so.

ShoulderThingThatGoesUp

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Re: Why is the Roth 401k limit 18k?
« Reply #5 on: March 31, 2016, 07:30:14 AM »
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

Sadly there's no requirement that the process for determining how much you owe not suck up an enormous amount of the country's productivity in otherwise pointless form-filling.

forummm

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Re: Why is the Roth 401k limit 18k?
« Reply #6 on: March 31, 2016, 08:38:50 AM »
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

Sadly there's no requirement that the process for determining how much you owe not suck up an enormous amount of the country's productivity in otherwise pointless form-filling.

H&R Block's lobbyists (and their campaign contributions) disagree with you.

ShoulderThingThatGoesUp

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Re: Why is the Roth 401k limit 18k?
« Reply #7 on: March 31, 2016, 08:43:36 AM »
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

Sadly there's no requirement that the process for determining how much you owe not suck up an enormous amount of the country's productivity in otherwise pointless form-filling.

H&R Block's lobbyists (and their campaign contributions) disagree with you.

I would be fine with losing tax-advantaged retirement accounts (not my balances, but future tax-free contributions) in exchange for a ten-page tax code.

forummm

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Re: Why is the Roth 401k limit 18k?
« Reply #8 on: March 31, 2016, 09:32:58 AM »
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

Sadly there's no requirement that the process for determining how much you owe not suck up an enormous amount of the country's productivity in otherwise pointless form-filling.

H&R Block's lobbyists (and their campaign contributions) disagree with you.

I would be fine with losing tax-advantaged retirement accounts (not my balances, but future tax-free contributions) in exchange for a ten-page tax code.

Yes, a lot of regular people would like that (although 10 pages may not quite do it for my tastes--legislative pages are pretty short and the country is pretty complex). But there are a great many powerful people who profit from a complex tax code. All the special interests served by those loopholes and tax professionals who are needed to help people comply with all the rules.

Sibley

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Re: Why is the Roth 401k limit 18k?
« Reply #9 on: April 01, 2016, 10:42:24 AM »
I'm a little out of date, but when I was doing taxes for a living, all the accountant groups were lobbying for the tax code to be simplified. Pretty bad when the people earning a living doing it want it made easier!

nereo

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Re: Why is the Roth 401k limit 18k?
« Reply #10 on: April 01, 2016, 11:06:22 AM »
I'm a little out of date, but when I was doing taxes for a living, all the accountant groups were lobbying for the tax code to be simplified. Pretty bad when the people earning a living doing it want it made easier!

I've always wondered what it would take to completely re-vamp the tax code and get it down to something that was just a few dozen pages.  Obviously there are lots nad lots of groups that will fight tooth-and-nail to keep their special deduction.

Not sure I'll see it anytime soon - certainly not in this political climate.

zolotiyeruki

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Re: Why is the Roth 401k limit 18k?
« Reply #11 on: April 01, 2016, 02:49:49 PM »
I've always wondered what it would take to completely re-vamp the tax code and get it down to something that was just a few dozen pages.  Obviously there are lots nad lots of groups that will fight tooth-and-nail to keep their special deduction.

Not sure I'll see it anytime soon - certainly not in this political climate.
Sorry, gotta foam a bit here.

The problem is that no matter how you simplify it, some people will benefit, and others will lose out.  Flat tax?  It hurts low-income people.  Larger standard deduction?  You'll have to raise the marginal rates to compensate.  Eliminate the state income tax deduction?  You hurt those who live in high-tax states.  And then there are all the carve-outs.  Child tax credits.  IRA deductions.  Special treatment of farm income.  Qualified dividends.  Saver's credit. Home mortgage interest deduction.  Business expense deduction.  The list goes on *forever*.  If you're simplifying, that means you're slaughtering someone's cash cow.  Once you simplify it down to Solution X, it's possible that everyone's tax bill might be similar to what it was before the reform.  But it's a hard sell.

I suppose you could make it an easier transition by phasing in the changes over a number of years, but there's no easy solution.

nereo

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Re: Why is the Roth 401k limit 18k?
« Reply #12 on: April 02, 2016, 11:10:40 AM »
I've always wondered what it would take to completely re-vamp the tax code and get it down to something that was just a few dozen pages.  Obviously there are lots nad lots of groups that will fight tooth-and-nail to keep their special deduction.

Not sure I'll see it anytime soon - certainly not in this political climate.
Sorry, gotta foam a bit here.

The problem is that no matter how you simplify it, some people will benefit, and others will lose out.  Flat tax?  It hurts low-income people.  Larger standard deduction?  You'll have to raise the marginal rates to compensate.  Eliminate the state income tax deduction?  You hurt those who live in high-tax states.  And then there are all the carve-outs.  Child tax credits.  IRA deductions.  Special treatment of farm income.  Qualified dividends.  Saver's credit. Home mortgage interest deduction.  Business expense deduction.  The list goes on *forever*.  If you're simplifying, that means you're slaughtering someone's cash cow.  Once you simplify it down to Solution X, it's possible that everyone's tax bill might be similar to what it was before the reform.  But it's a hard sell.

I suppose you could make it an easier transition by phasing in the changes over a number of years, but there's no easy solution.

Yeah, that's kind of what I've been thinking too.
The question then becomes: is there any way we can get ourselves out of this entropy trap?
Our tax code is complex because we add in all sorts of special deductions, credits and write-offs. In a way they reflect our society's values (e.g. raising children, owning homes, public service, etc).  THe obvious problem is, once we have a special deduction it seems very, very hard to eliminate it politically.  So - our tax code will just keep getting more complex.  I can envision a future not so distant where the tax code is 4x as long as it is today.  Advances in software might mitigate that complexity somewhat, but under our current approach I can't see a way forward where things get simpler instead of more complex.


zolotiyeruki

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Re: Why is the Roth 401k limit 18k?
« Reply #13 on: April 02, 2016, 11:37:52 AM »
Yeah, that's kind of what I've been thinking too.
The question then becomes: is there any way we can get ourselves out of this entropy trap?
Realistically speaking, probably not.  I mean, when was the last time you heard of ANY law being simply repealed, especially on the federal level?  A couple years ago, Minnesota held an "unsession", during which they repealed hundreds of archaic/moot/obsolete laws.  (what a great idea, right?) But except for laws with built-in sunset dates, and regulations promulgated via agencies, I can't, off the top of my head, think of a federal law that's been outright repealed lately.

forummm

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Re: Why is the Roth 401k limit 18k?
« Reply #14 on: April 02, 2016, 03:04:54 PM »
Yeah, that's kind of what I've been thinking too.
The question then becomes: is there any way we can get ourselves out of this entropy trap?
Realistically speaking, probably not.  I mean, when was the last time you heard of ANY law being simply repealed, especially on the federal level?  A couple years ago, Minnesota held an "unsession", during which they repealed hundreds of archaic/moot/obsolete laws.  (what a great idea, right?) But except for laws with built-in sunset dates, and regulations promulgated via agencies, I can't, off the top of my head, think of a federal law that's been outright repealed lately.

If those laws were archaic/moot/obsolete, then repealing them probably did nothing except make the law book a little shorter :)

Travis

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Re: Why is the Roth 401k limit 18k?
« Reply #15 on: April 02, 2016, 05:03:53 PM »
Yeah, that's kind of what I've been thinking too.
The question then becomes: is there any way we can get ourselves out of this entropy trap?
Realistically speaking, probably not.  I mean, when was the last time you heard of ANY law being simply repealed, especially on the federal level?  A couple years ago, Minnesota held an "unsession", during which they repealed hundreds of archaic/moot/obsolete laws.  (what a great idea, right?) But except for laws with built-in sunset dates, and regulations promulgated via agencies, I can't, off the top of my head, think of a federal law that's been outright repealed lately.

If those laws were archaic/moot/obsolete, then repealing them probably did nothing except make the law book a little shorter :)

Small victories....

A simplified tax code might not mean much to some folks, but it could mean millions to corporations who need to employ an army of accountants and lawyers to pay their tax bill every year.  You're all correct though that there is too much at stake and too many stakeholders to affect any real change in the system.  You'd be better off starting with a clean sheet of paper than debating who gets their deduction cut out of the code first.

forummm

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Re: Why is the Roth 401k limit 18k?
« Reply #16 on: April 04, 2016, 11:27:01 AM »
Interesting, so you really can contribute more after tax to a Traditional than a Roth... Odd.

I guess the Roth is still useful if your company doesn't allow after tax.

Thanks Guys

What? I don't think this is right.