Republicans Consider Sharp Cut in 401(k) Contribution Limits

[ixtap]

And now this:

https://www.cnbc.com/2017/10/27/the-401k-debate-continues-as-lawmakers-float-a-20000-cap.html

Tennis anyone?

We will either slash it or raise it. What?! How about moderate it???

Maybe next time the ball will get caught in the net, at a happy medium.

[TomTX]

Isn't it pretty portable already in that you can roll it into an IRA when you leave?

If you leave jobs regularly, sure. Otherwise - nope.

[DarkandStormy]

If they double the standard deduction, lower the tax rates, and increase the pre-tax limit to 20K, my family (upper middle class by every definition) would basically be paying no federal income tax.  As a Republican who is more of a deficit hawk, I have to admit that would be totally fuct up.

Yes, I'm soothing my pain with liquor after only paying $872 in federal income tax on a $108,000 income. And, I also over paid my quarterlies by $6,800. I aquired some deductions that I didn't plan for. Two kids and college expense credits.
 Another sip and my pain will be gone :-)

How in the hell are you paying $872 in federal income tax on a $108,000 income? is that because of kids and college expenses? I am nowhere paying that low, even with 401k, HSA and tIRA deductions.

http://gocurrycracker.com/never-pay-taxes-again/

If you have access to 403 AND 457, that's $36k that doesn't get taxed.

http://www.millionaireeducator.com/2017-free-money-tax-tables

[boarder42]

If they double the standard deduction, lower the tax rates, and increase the pre-tax limit to 20K, my family (upper middle class by every definition) would basically be paying no federal income tax.  As a Republican who is more of a deficit hawk, I have to admit that would be totally fuct up.

Yes, I'm soothing my pain with liquor after only paying $872 in federal income tax on a $108,000 income. And, I also over paid my quarterlies by $6,800. I aquired some deductions that I didn't plan for. Two kids and college expense credits.
 Another sip and my pain will be gone :-)

How in the hell are you paying $872 in federal income tax on a $108,000 income? is that because of kids and college expenses? I am nowhere paying that low, even with 401k, HSA and tIRA deductions.

http://gocurrycracker.com/never-pay-taxes-again/

If you have access to 403 AND 457, that's $36k that doesn't get taxed.

http://www.millionaireeducator.com/2017-free-money-tax-tables

what are all these massive credits that appear when you have a child to the tune of 10k or 19k for 2.  We dont have children yet but will.

[DarkandStormy]

If they double the standard deduction, lower the tax rates, and increase the pre-tax limit to 20K, my family (upper middle class by every definition) would basically be paying no federal income tax.  As a Republican who is more of a deficit hawk, I have to admit that would be totally fuct up.

Yes, I'm soothing my pain with liquor after only paying $872 in federal income tax on a $108,000 income. And, I also over paid my quarterlies by $6,800. I aquired some deductions that I didn't plan for. Two kids and college expense credits.
 Another sip and my pain will be gone :-)

How in the hell are you paying $872 in federal income tax on a $108,000 income? is that because of kids and college expenses? I am nowhere paying that low, even with 401k, HSA and tIRA deductions.

http://gocurrycracker.com/never-pay-taxes-again/

If you have access to 403 AND 457, that's $36k that doesn't get taxed.

http://www.millionaireeducator.com/2017-free-money-tax-tables

what are all these massive credits that appear when you have a child to the tune of 10k or 19k for 2.  We dont have children yet but will.

https://www.irs.gov/newsroom/ten-facts-about-the-child-tax-credit

If your situation qualifies, you get a $1,000 tax credit per child.  In the Millionaire Educator post, he's showing that in the 10% bracket.  $1,000 / 10% = $10,000 in taxable income that is being cancelled out by the credit.

[boarder42]

If they double the standard deduction, lower the tax rates, and increase the pre-tax limit to 20K, my family (upper middle class by every definition) would basically be paying no federal income tax.  As a Republican who is more of a deficit hawk, I have to admit that would be totally fuct up.

Yes, I'm soothing my pain with liquor after only paying $872 in federal income tax on a $108,000 income. And, I also over paid my quarterlies by $6,800. I aquired some deductions that I didn't plan for. Two kids and college expense credits.
 Another sip and my pain will be gone :-)

How in the hell are you paying $872 in federal income tax on a $108,000 income? is that because of kids and college expenses? I am nowhere paying that low, even with 401k, HSA and tIRA deductions.

http://gocurrycracker.com/never-pay-taxes-again/

If you have access to 403 AND 457, that's $36k that doesn't get taxed.

http://www.millionaireeducator.com/2017-free-money-tax-tables

what are all these massive credits that appear when you have a child to the tune of 10k or 19k for 2.  We dont have children yet but will.

https://www.irs.gov/newsroom/ten-facts-about-the-child-tax-credit

If your situation qualifies, you get a $1,000 tax credit per child.  In the Millionaire Educator post, he's showing that in the 10% bracket.  $1,000 / 10% = $10,000 in taxable income that is being cancelled out by the credit.

bingo - thats what i was missing on what he was doing there.  That makes sense.

[Memphis Mustache]

You would think that as pragmatic as politicians are that they wouldn't want to mess with people's retirement. I don't have a 401k but do have a 403b at my current workplace, so I have no doubt that the contribution limit change would impact the 403b as well. Cutting the contribution limit all the way down to $2,400 would absolutely gut my ability to prepare for retirement (as least as I know it now), as my retirement formula would shift to:

$2,400 per year on 403b
$5,500 per year in Roth
$x,xxx in Vanguard brokerage account

2018 was/is going to be my first year maxing out my 403b contributions ($18,000 is what I intend to contribute). I don't consider myself to be "rich", though plenty of articles on this subject try to suggest that only the wealthy contribute at or near the maximum amount; I make $89k per year, live in a 1,300 square foot house and am trying to live below my means so that I can save for retirement, retire earlier (hopefully much earlier) than the "average" American and live the final 30+ years of my life on my own terms rather than the terms of an employer.

It would almost certainly totally change my future retirement date. I doubt that this will get passed but just the fact that it is being discussed as a possibility is pretty scary. I personally won't vote for any Congressional or Presidential candidate that supports a change like this that guts our retirement options. I just can't imagine why they would be willing to risk such a major backlash from voters.

[boarder42]

You would think that as pragmatic as politicians are that they wouldn't want to mess with people's retirement. I don't have a 401k but do have a 403b at my current workplace, so I have no doubt that the contribution limit change would impact the 403b as well. Cutting the contribution limit all the way down to $2,400 would absolutely gut my ability to prepare for retirement (as least as I know it now), as my retirement formula would shift to:

$2,400 per year on 403b
$5,500 per year in Roth
$x,xxx in Vanguard brokerage account

2018 was/is going to be my first year maxing out my 403b contributions ($18,000 is what I intend to contribute). I don't consider myself to be "rich", though plenty of articles on this subject try to suggest that only the wealthy contribute at or near the maximum amount; I make $89k per year, live in a 1,300 square foot house and am trying to live below my means so that I can save for retirement, retire earlier (hopefully much earlier) than the "average" American and live the final 30+ years of my life on my own terms rather than the terms of an employer.

It would almost certainly totally change my future retirement date. I doubt that this will get passed but just the fact that it is being discussed as a possibility is pretty scary. I personally won't vote for any Congressional or Presidential candidate that supports a change like this that guts our retirement options. I just can't imagine why they would be willing to risk such a major backlash from voters.

you make 89k per year in a LCOL area.  you're in the upper tier of income levels and shouldnt really be complaining about not getting this tax break.  You fit into the "rich" category or "wealthy" or "high income" category that uses this as a tool to shelter taxes.. i'm in the same boat. 

Now as previous posters have said i dont want you to take away from the upper middle to give to the upper upper.  as this tax change appears to be doing by decreasing the top tax bracket. and eliminating the inheritance tax.

but for you to claim you arent an upper tier person benefiting from this you're just lying to yourself.

[Heywood57]

Isn't it pretty portable already in that you can roll it into an IRA when you leave?

If you leave jobs regularly, sure. Otherwise - nope.

Some 401k plans allow in service rollovers

https://www.401krollover.com/what-is-in-service-401k-rollover-plan/

[sol]

I just can't imagine why they would be willing to risk such a major backlash from voters.

You really can't imagine why?  Let me offer you a possible explanation, since your imagination is failng you at the moment:  the voters are not the constituency they are worried about.

Politicians in general and Republican politicians in particular do not care what the voters want.  They only care about being re-elected, and in so far as voter preferences will help them in that goal they will listen to voters.  But in today's political environment, where unlimited corporate donations to candidates can buy enough ads to sway an electorate, politicians listen to big donors more than they listen to poor voters. 

We live in an era of big money politics.  Some random individual voter's voice is basically inconsequential if Charles Koch pledges ten million dollars to your opponent in the primary.  You will listen to Charles Koch every time, because he's an existential threat to your candidacy and his money can change the minds of thousands of voters.

Or if not a Koch, then a Goldman Sachs or a Soros or an Adelson or a teachers union.  There are really only a few hundred people/organizations that effectively get all the votes in our so-called democracy, and if they want to screw your 401k contributions then you'd best prepare to get screwed.

tl;dr it's not about the voters anymore.

[Memphis Mustache]

You would think that as pragmatic as politicians are that they wouldn't want to mess with people's retirement. I don't have a 401k but do have a 403b at my current workplace, so I have no doubt that the contribution limit change would impact the 403b as well. Cutting the contribution limit all the way down to $2,400 would absolutely gut my ability to prepare for retirement (as least as I know it now), as my retirement formula would shift to:

$2,400 per year on 403b
$5,500 per year in Roth
$x,xxx in Vanguard brokerage account

2018 was/is going to be my first year maxing out my 403b contributions ($18,000 is what I intend to contribute). I don't consider myself to be "rich", though plenty of articles on this subject try to suggest that only the wealthy contribute at or near the maximum amount; I make $89k per year, live in a 1,300 square foot house and am trying to live below my means so that I can save for retirement, retire earlier (hopefully much earlier) than the "average" American and live the final 30+ years of my life on my own terms rather than the terms of an employer.

It would almost certainly totally change my future retirement date. I doubt that this will get passed but just the fact that it is being discussed as a possibility is pretty scary. I personally won't vote for any Congressional or Presidential candidate that supports a change like this that guts our retirement options. I just can't imagine why they would be willing to risk such a major backlash from voters.

you make 89k per year in a LCOL area.  you're in the upper tier of income levels and shouldnt really be complaining about not getting this tax break.  You fit into the "rich" category or "wealthy" or "high income" category that uses this as a tool to shelter taxes.. i'm in the same boat. 

Now as previous posters have said i dont want you to take away from the upper middle to give to the upper upper.  as this tax change appears to be doing by decreasing the top tax bracket. and eliminating the inheritance tax.

but for you to claim you arent an upper tier person benefiting from this you're just lying to yourself.

I make less than six figures - how is that "rich" or "wealthy"? I recognize that I live in a poor city (Memphis) but I still don't consider myself wealthy. I budget, save & plan like anyone else who isn't truly rich. What am I "benefiting" from? The same 403b/401k rules that everyone else follows and has access to? By that token everyone who has access to a 403b or 401k is "benefiting". You make it sound like I am doing something wrong. I am trying to protect my retirement, just like everyone else should. It isn't like I have access to something that others don't have access to.

[Memphis Mustache]

I just can't imagine why they would be willing to risk such a major backlash from voters.

You really can't imagine why?  Let me offer you a possible explanation, since your imagination is failng you at the moment:  the voters are not the constituency they are worried about.

Politicians in general and Republican politicians in particular do not care what the voters want.  They only care about being re-elected, and in so far as voter preferences will help them in that goal they will listen to voters.  But in today's political environment, where unlimited corporate donations to candidates can buy enough ads to sway an electorate, politicians listen to big donors more than they listen to poor voters. 

We live in an era of big money politics.  Some random individual voter's voice is basically inconsequential if Charles Koch pledges ten million dollars to your opponent in the primary.  You will listen to Charles Koch every time, because he's an existential threat to your candidacy and his money can change the minds of thousands of voters.

Or if not a Koch, then a Goldman Sachs or a Soros or an Adelson or a teachers union.  There are really only a few hundred people/organizations that effectively get all the votes in our so-called democracy, and if they want to screw your 401k contributions then you'd best prepare to get screwed.

tl;dr it's not about the voters anymore.

Yes, I know that the supposed "tax cut" is truly intended to benefit big business. It's just a sad state of affairs that people are so foolish that Congress might actually get away with this. That shouldn't be the case but it is a possibility.

[sokoloff]

2018 was/is going to be my first year maxing out my 403b contributions ($18,000 is what I intend to contribute). I don't consider myself to be "rich", though plenty of articles on this subject try to suggest that only the wealthy contribute at or near the maximum amount; I make $89k per year, live in a 1,300 square foot house and am trying to live below my means so that I can save for retirement, retire earlier (hopefully much earlier) than the "average" American and live the final 30+ years of my life on my own terms rather than the terms of an employer.

you make 89k per year in a LCOL area.  you're in the upper tier of income levels and shouldnt really be complaining about not getting this tax break.  You fit into the "rich" category or "wealthy" or "high income" category that uses this as a tool to shelter taxes.. <snip>
but for you to claim you arent an upper tier person benefiting from this you're just lying to yourself.

I make less than six figures - how is that "rich" or "wealthy"? I recognize that I live in a poor city (Memphis) but I still don't consider myself wealthy. I budget, save & plan like anyone else who isn't truly rich.

If you continue to work hard, scrimp and save diligently for 20+ years, you may end up with a million or more balance in your 401K and be considered "rich".
Based on that, you're rich today according to some. Others disagree, of course.

[Memphis Mustache]

2018 was/is going to be my first year maxing out my 403b contributions ($18,000 is what I intend to contribute). I don't consider myself to be "rich", though plenty of articles on this subject try to suggest that only the wealthy contribute at or near the maximum amount; I make $89k per year, live in a 1,300 square foot house and am trying to live below my means so that I can save for retirement, retire earlier (hopefully much earlier) than the "average" American and live the final 30+ years of my life on my own terms rather than the terms of an employer.

you make 89k per year in a LCOL area.  you're in the upper tier of income levels and shouldnt really be complaining about not getting this tax break.  You fit into the "rich" category or "wealthy" or "high income" category that uses this as a tool to shelter taxes.. <snip>
but for you to claim you arent an upper tier person benefiting from this you're just lying to yourself.

I make less than six figures - how is that "rich" or "wealthy"? I recognize that I live in a poor city (Memphis) but I still don't consider myself wealthy. I budget, save & plan like anyone else who isn't truly rich.

If you continue to work hard, scrimp and save diligently for 20+ years, you may end up with a million or more balance in your 401K and be considered "rich".
Based on that, you're rich today according to some. Others disagree, of course.

Yes, by the standards of the typical, living paycheck-to-paycheck, barely-scraping-by American that really seems to be the standard today, most of us on these forums would be considered "rich" because we aren't one paycheck from the street. I just look it at from the standpoint that at $89k per year, I don't really consider that to be the salary of a rich/wealthy person. I just have better discipline and live a different lifestyle than most others and that allows me to save more of my money for retirement. I guess it depends on your definition of rich.

[I'm a red panda]

2018 was/is going to be my first year maxing out my 403b contributions ($18,000 is what I intend to contribute). I don't consider myself to be "rich", though plenty of articles on this subject try to suggest that only the wealthy contribute at or near the maximum amount; I make $89k per year, live in a 1,300 square foot house and am trying to live below my means so that I can save for retirement, retire earlier (hopefully much earlier) than the "average" American and live the final 30+ years of my life on my own terms rather than the terms of an employer.

you make 89k per year in a LCOL area.  you're in the upper tier of income levels and shouldnt really be complaining about not getting this tax break.  You fit into the "rich" category or "wealthy" or "high income" category that uses this as a tool to shelter taxes.. <snip>
but for you to claim you arent an upper tier person benefiting from this you're just lying to yourself.

I make less than six figures - how is that "rich" or "wealthy"? I recognize that I live in a poor city (Memphis) but I still don't consider myself wealthy. I budget, save & plan like anyone else who isn't truly rich.

If you continue to work hard, scrimp and save diligently for 20+ years, you may end up with a million or more balance in your 401K and be considered "rich".
Based on that, you're rich today according to some. Others disagree, of course.

Yes, by the standards of the typical, living paycheck-to-paycheck, barely-scraping-by American that really seems to be the standard today, most of us on these forums would be considered "rich" because we aren't one paycheck from the street. I just look it at from the standpoint that at $89k per year, I don't really consider that to be the salary of a rich/wealthy person. I just have better discipline and live a different lifestyle than most others and that allows me to save more of my money for retirement. I guess it depends on your definition of rich.

The median HOUSEHOLD income (all the working members of the household) is about $50k.
So I'd say a single person making $89k is indeed wealthy/rich.  Even if you are paying back a lot of debt- that's because you spent the money. So you can't say only savings = wealth. (Though really it sucks when it is medical debt. You don't have a lot of choice there.) 

The problem is our country has such huge income disparity that there is an incredible level of uber rich that makes people who are well beyond the median still feel like they are the middle.

[boarder42]

the amount of people on this thread who cant admit they are well above the avg american baffles me.. you have to be quite ignorant to think a single person making 89k per year is going to have a rough go of it without the 401k deduction.  So you have to work a couple extra years and retire at 40 instead of 38.  Its a really arrogant take to state that you're not rich/high income pulling in 80% more than the avg american household.

[sol]

The problem is our country has such huge income disparity that there is an incredible level of uber rich that makes people who are well beyond the median still feel like they are the middle.

That's one way of looking at it, but I think a more accurate read is that the median is not really relevant anymore.  In a population where 99 people make 1-99 cents and the 100th person makes 100 billion dollars, the "middle" person in that distribution isn't really indicative of anything.  That person still has effectively zero impact on the wealth of their micro economy.  Even the guy making 99 cents, though he's just outside of the 1%, is a pauper.

The very tiny minority of human beings who control most of the wealth on the planet love to foster arguments about "median income" because it hides their hundred billion dollar sized influence.  They much prefer other 99 folks fight like a bucket of crabs, knowing that as long as we fight we're not really going anywhere and their position of privilege is safe.

I may be the 95th crab, but moving up to being the 96th isn't going to make one bit of difference.  Admitting that I am far above the median means nothing if 5 individual humans own half of the wealth on the planet. 

[Memphis Mustache]

the amount of people on this thread who cant admit they are well above the avg american baffles me.. you have to be quite ignorant to think a single person making 89k per year is going to have a rough go of it without the 401k deduction.  So you have to work a couple extra years and retire at 40 instead of 38.  Its a really arrogant take to state that you're not rich/high income pulling in 80% more than the avg american household.

If that is arrogant then I don't mind being arrogant. Why should I accept such a boneheaded decision from Congress? What good reason has Congress provided for why the retirement contribution limits should be cut so drastically? A lot of people would be impacted by these decisions and not all of them are rich. I am honestly shocked that I am having to defend my opposition to this proposed change, on this board of all places.

[sokoloff]

the amount of people on this thread who cant admit they are well above the avg american baffles me.. you have to be quite ignorant to think a single person making 89k per year is going to have a rough go of it without the 401k deduction.  So you have to work a couple extra years and retire at 40 instead of 38.  Its a really arrogant take to state that you're not rich/high income pulling in 80% more than the avg american household.

The average American household in 2014 made $72,641. $89K is about 22% more than that, not 80%

Source: US Census Bureau 2014 Annual Social and Economic Supplement.

[CheapScholar]

For those calling Democratic reps, you could mention this bill the Dems announced today to RAISE PRE-TAX 401(k) contributions: http://www.washingtonexaminer.com/democrats-pitch-plan-to-raise-pre-tax-limit-on-401k-savings/article/2639104

Obviously the Dems will not get this passed and it's a publicity thing for them.  But the more calls they get from people supporting it, the more the Dems will exploit it and hold Republicans accountable.

[Travis]

I just can't imagine why they would be willing to risk such a major backlash from voters.

You really can't imagine why?  Let me offer you a possible explanation, since your imagination is failng you at the moment:  the voters are not the constituency they are worried about.

Politicians in general and Republican politicians in particular do not care what the voters want.  They only care about being re-elected, and in so far as voter preferences will help them in that goal they will listen to voters.  But in today's political environment, where unlimited corporate donations to candidates can buy enough ads to sway an electorate, politicians listen to big donors more than they listen to poor voters. 

We live in an era of big money politics.  Some random individual voter's voice is basically inconsequential if Charles Koch pledges ten million dollars to your opponent in the primary.  You will listen to Charles Koch every time, because he's an existential threat to your candidacy and his money can change the minds of thousands of voters.

Or if not a Koch, then a Goldman Sachs or a Soros or an Adelson or a teachers union.  There are really only a few hundred people/organizations that effectively get all the votes in our so-called democracy, and if they want to screw your 401k contributions then you'd best prepare to get screwed.

tl;dr it's not about the voters anymore.

Yes, I know that the supposed "tax cut" is truly intended to benefit big business. It's just a sad state of affairs that people are so foolish that Congress might actually get away with this. That shouldn't be the case but it is a possibility.

When it comes to elections and campaigning, politicians figure out not only what voters care about, but how much they care about it.  They're calculating that you as a voter care more about something else as your core political belief than this one issue.  As long as they don't waffle on that one issue, they can do whatever else they want knowing it won't tip the scales because the other candidate is clearly worse due to them being the polar opposite on that one hot-button issue.  Think of all the things that Congress is responsible for and you find yourself upset about, then wait until election time and see how much of that list is even mentioned.  If in your area 401ks are important and they vote to slash them, they'll do their best to hype something else and drown out any talk of this in favor of your #2 issue.  As others have mentioned here already, not enough Americans use their 401k for this to even register to the greater public come election time so if this passes it'll be a footnote next year. 

[doneby35]

I dislike both parties but I honestly think that the GOP is being a huge asshole at this point.

[Peony]

^^^What Sol just said.

[TempusFugit]

the amount of people on this thread who cant admit they are well above the avg american baffles me.. you have to be quite ignorant to think a single person making 89k per year is going to have a rough go of it without the 401k deduction.  So you have to work a couple extra years and retire at 40 instead of 38.  Its a really arrogant take to state that you're not rich/high income pulling in 80% more than the avg american household.

If that is arrogant then I don't mind being arrogant. Why should I accept such a boneheaded decision from Congress? What good reason has Congress provided for why the retirement contribution limits should be cut so drastically? A lot of people would be impacted by these decisions and not all of them are rich. I am honestly shocked that I am having to defend my opposition to this proposed change, on this board of all places.

Don't let it bother you too much.  I think perhaps what is intended (I hope) is a reminder most of us to be more on the gratitude side of the equation even while we are justifiably concerned and upset about something that might negatively affect us.  Just remember the 'rich' guy is always the one who makes more than us : )    I think that's true all the way up the ladder.

[Undecided]

the amount of people on this thread who cant admit they are well above the avg american baffles me.. you have to be quite ignorant to think a single person making 89k per year is going to have a rough go of it without the 401k deduction.  So you have to work a couple extra years and retire at 40 instead of 38.  Its a really arrogant take to state that you're not rich/high income pulling in 80% more than the avg american household.

If that is arrogant then I don't mind being arrogant. Why should I accept such a boneheaded decision from Congress? What good reason has Congress provided for why the retirement contribution limits should be cut so drastically? A lot of people would be impacted by these decisions and not all of them are rich. I am honestly shocked that I am having to defend my opposition to this proposed change, on this board of all places.

Don't let it bother you too much.  I think perhaps what is intended (I hope) is a reminder most of us to be more on the gratitude side of the equation even while we are justifiably concerned and upset about something that might negatively affect us.  Just remember the 'rich' guy is always the one who makes more than us : )    I think that's true all the way up the ladder.

I don't get it. If someone's relatively well off (whatever that means), they can't object to any proposed changes?

If the proposal was for armed government agents to go door to door demanding $100 from every household, with the intent of delivering all that money to Jeff Bezos, I wouldn't say that complaints from anyone, no matter how well off, reflects a lack of gratitude.

It would be nice to see a complete proposal, although somehow I expect that despite all the talk of reform and simplification, it's not going to be immediately obvious how it will affect me, you, or anyone (although I'm confident that the big-picture takeaway will be that it is noise one way or the other for just about everyone, with big benefits to the very wealthiest).

[CheapScholar]

GOP now delaying release of tax bill until Thursday: http://www.businessinsider.com/tax-reform-bill-trump-plan-text-2017-10

I do think the backlash over 401(k) changes is starting to get to them.  Keep raising hell!

[doneby35]

GOP now delaying release of tax bill until Thursday: http://www.businessinsider.com/tax-reform-bill-trump-plan-text-2017-10

I do think the backlash over 401(k) changes is starting to get to them.  Keep raising hell!

Maybe the saw that the democrats proposed raising the pre-tax limit instead of decreasing it and they realized that they are going to look like the bad guys and now they are making changes and not touching 401k. Or at least I hope so.

[boarder42]

the amount of people on this thread who cant admit they are well above the avg american baffles me.. you have to be quite ignorant to think a single person making 89k per year is going to have a rough go of it without the 401k deduction.  So you have to work a couple extra years and retire at 40 instead of 38.  Its a really arrogant take to state that you're not rich/high income pulling in 80% more than the avg american household.

If that is arrogant then I don't mind being arrogant. Why should I accept such a boneheaded decision from Congress? What good reason has Congress provided for why the retirement contribution limits should be cut so drastically? A lot of people would be impacted by these decisions and not all of them are rich. I am honestly shocked that I am having to defend my opposition to this proposed change, on this board of all places.

Don't let it bother you too much.  I think perhaps what is intended (I hope) is a reminder most of us to be more on the gratitude side of the equation even while we are justifiably concerned and upset about something that might negatively affect us.  Just remember the 'rich' guy is always the one who makes more than us : )    I think that's true all the way up the ladder.

I don't get it. If someone's relatively well off (whatever that means), they can't object to any proposed changes?

If the proposal was for armed government agents to go door to door demanding $100 from every household, with the intent of delivering all that money to Jeff Bezos, I wouldn't say that complaints from anyone, no matter how well off, reflects a lack of gratitude.

It would be nice to see a complete proposal, although somehow I expect that despite all the talk of reform and simplification, it's not going to be immediately obvious how it will affect me, you, or anyone (although I'm confident that the big-picture takeaway will be that it is noise one way or the other for just about everyone, with big benefits to the very wealthiest).

As I said above I'm against lowering the contribution but the level of ignorance at the level of income some are bringing in is quite appauling.  And a great willingness to defend that they are not in the upper tier.  If it makes you sleep better at night to say youre equivalent to a Walmart greater at 89-100k plus as an individual income. By all means keep lying to yourself.

[DavidAnnArbor]

the amount of people on this thread who cant admit they are well above the avg american baffles me.. you have to be quite ignorant to think a single person making 89k per year is going to have a rough go of it without the 401k deduction.  So you have to work a couple extra years and retire at 40 instead of 38.  Its a really arrogant take to state that you're not rich/high income pulling in 80% more than the avg american household.

If that is arrogant then I don't mind being arrogant. Why should I accept such a boneheaded decision from Congress? What good reason has Congress provided for why the retirement contribution limits should be cut so drastically? A lot of people would be impacted by these decisions and not all of them are rich. I am honestly shocked that I am having to defend my opposition to this proposed change, on this board of all places.

I agree with you Memphis. What the Republicans are proposing is outrageous and goes against what the 401k plan was supposed to do which was encourage retirement savings and not be a burden on others in our senior years.

[sol]

What the Republicans are proposing is outrageous and goes against what the 401k plan was supposed to do which was encourage retirement savings and not be a burden on others in our senior years.

I don't think they care about what it was intended to do, and they certainly don't care about the retirement crisis.  They care about cutting the corporate tax rates and the estate tax, and in order to pass those via reconciliation they need their tax plan to be budget neutral after 10 years.  They can either do what Bush did, and just pass a ten-year tax cut that expires at the ten year mark budget deadline and claim it doesn't reduce revenues after ten years, or they can try to revoke other tax breaks to offset the revenue lost from cutting corporate taxes and the estate tax. 

Poor people don't get enough tax breaks to make up for their proposed cuts to the corporate tax rate and the estate tax, so really the ONLY viable option is here is to go after the middle (and upper middle) class.  Hence all of the talk about each of the big middle class tax breaks; mortgage interest, state and local taxes, and 401ks.  Those are the only people you can rob in order to give tax breaks to the wealthy.  It's just a math problem.

And the math problems does not have any inputs for "why did we create the 401k program in the first place."  If it did, they might remember that it was a conservative republican idea designed to facilitate getting rid of pensions.  It was supposed to give you more control over your retirement, and empower you to invest your own money instead of relying on the professional asset managers at your pension fund.  Of course, it also totally negated the actuarial power of pension plans and caused all of us to have to save MORE money than we previously had to contribute to our pensions.

[doggyfizzle]

What the Republicans are proposing is outrageous and goes against what the 401k plan was supposed to do which was encourage retirement savings and not be a burden on others in our senior years.

I don't think they care about what it was intended to do, and they certainly don't care about the retirement crisis.  They care about cutting the corporate tax rates and the estate tax, and in order to pass those via reconciliation they need their tax plan to be budget neutral after 10 years.  They can either do what Bush did, and just pass a ten-year tax cut that expires at the ten year mark budget deadline and claim it doesn't reduce revenues after ten years, or they can try to revoke other tax breaks to offset the revenue lost from cutting corporate taxes and the estate tax. 

Poor people don't get enough tax breaks to make up for their proposed cuts to the corporate tax rate and the estate tax, so really the ONLY viable option is here is to go after the middle (and upper middle) class.  Hence all of the talk about each of the big middle class tax breaks; mortgage interest, state and local taxes, and 401ks.  Those are the only people you can rob in order to give tax breaks to the wealthy.  It's just a math problem.

And the math problems does not have any inputs for "why did we create the 401k program in the first place."  If it did, they might remember that it was a conservative republican idea designed to facilitate getting rid of pensions.  It was supposed to give you more control over your retirement, and empower you to invest your own money instead of relying on the professional asset managers at your pension fund.  Of course, it also totally negated the actuarial power of pension plans and caused all of us to have to save MORE money than we previously had to contribute to our pensions.

Actually, the 401k plan was introduced as a new means of executive compensation; the original deferral amounts were huge and only revised downwards as part of the Omnibus Reconcilliation Act of 1986 (the St Reagan tax INCREASES).

[sokoloff]

And the math problems does not have any inputs for "why did we create the 401k program in the first place."  If it did, they might remember that it was a conservative republican idea designed to facilitate getting rid of pensions.

Actually, the 401k plan was introduced as a new means of executive compensation; the original deferral amounts were huge and only revised downwards as part of the Omnibus Reconcilliation Act of 1986 (the St Reagan tax INCREASES).

The 401(k) was created in 1978. In 1978, the US had Democrat majorities in the House (277-158), the Senate (58-41-1), and a Democrat President. With those facts, it's certainly possible that this was a conservative Republican invention, but that seems unlikely that they'd be able to cram it through a Democrat lock on House, Senate, and Presidency.

[talltexan]

I just can't imagine why they would be willing to risk such a major backlash from voters.

You really can't imagine why?  Let me offer you a possible explanation, since your imagination is failng you at the moment:  the voters are not the constituency they are worried about.

Politicians in general and Republican politicians in particular do not care what the voters want.  They only care about being re-elected, and in so far as voter preferences will help them in that goal they will listen to voters.  But in today's political environment, where unlimited corporate donations to candidates can buy enough ads to sway an electorate, politicians listen to big donors more than they listen to poor voters. 

We live in an era of big money politics.  Some random individual voter's voice is basically inconsequential if Charles Koch pledges ten million dollars to your opponent in the primary.  You will listen to Charles Koch every time, because he's an existential threat to your candidacy and his money can change the minds of thousands of voters.

Or if not a Koch, then a Goldman Sachs or a Soros or an Adelson or a teachers union.  There are really only a few hundred people/organizations that effectively get all the votes in our so-called democracy, and if they want to screw your 401k contributions then you'd best prepare to get screwed.

tl;dr it's not about the voters anymore.

This matters much more in an environment in which most seats in Congress are safely Republican or safely Democratic (because of gerrymandering). You know that Koch money is going to a primary challenger to you if you vote against these tax cuts.

[alexpkeaton]

This matters much more in an environment in which most seats in Congress are safely Republican or safely Democratic (because of gerrymandering). You know that Koch money is going to a primary challenger to you if you vote against these tax cuts.

Maybe, but I wouldn't be too sure. The Kochs are libertarians. They're no fans of Trump's white nationalism or protectionism on trade. They'd certainly favor actual tax reform, but so far there's nothing to indicate the Republican plan contains any actual reform. Though lower rates are still lower rates, so the Kochs will still probably like it. But I have an easier time seeing the Kochs supporting establishment Republicans than the nationalist loonies that love Trump.

[boarder42]

So a sidebar question since this is all about tax talk.

If they pass a new tax bill does it affect 2017 taxes or does it take effect for 2018 taxes.  How did the bush tax cuts work?  I wasnt old enough then.

[dandarc]

So a sidebar question since this is all about tax talk.

If they pass a new tax bill does it affect 2017 taxes or does it take effect for 2018 taxes.  How did the bush tax cuts work?  I wasnt old enough then.

Bush tax cuts, I believe, were for the next year.  Clinton tax changes were retroactive to some extent.  So "it depends what the bill says".

Although, I'd bet if they get anything done it will be for 2018 or later.

[boarder42]

So a sidebar question since this is all about tax talk.

If they pass a new tax bill does it affect 2017 taxes or does it take effect for 2018 taxes.  How did the bush tax cuts work?  I wasnt old enough then.

Bush tax cuts, I believe, were for the next year.  Clinton tax changes were retroactive to some extent.  So "it depends what the bill says".

Although, I'd bet if they get anything done it will be for 2018 or later.

i thought that may be the answer.  and havent they started the 60 day clock on the ability to pass this without the larger majority.  so something has to get done this year or it wont happen til next?

[dandarc]

http://edition.cnn.com/2001/ALLPOLITICS/06/07/bush.taxes/

Indicates one change - the drop of the lowest bracket to 10% - was retroactive (bill passed mid-2001, and this change impacted 2001 taxes).  So the effective date varied even within the same bill.

[Outside the Box]

Good analysis:

Beware of Retirement Tax Gimmicks

https://medium.com/@kamin_83016/beware-of-retirement-tax-gimmicks-9b26246a70b9

[NextTime]

So a sidebar question since this is all about tax talk.

If they pass a new tax bill does it affect 2017 taxes or does it take effect for 2018 taxes.  How did the bush tax cuts work?  I wasnt old enough then.

Bush tax cuts, I believe, were for the next year.  Clinton tax changes were retroactive to some extent.  So "it depends what the bill says".

Although, I'd bet if they get anything done it will be for 2018 or later.

i thought that may be the answer.  and havent they started the 60 day clock on the ability to pass this without the larger majority.  so something has to get done this year or it wont happen til next?

I read something last month that said they were going to try and make them retroactive.  However, we are kind of running out of year so not sure if that was set in stone.

[boarder42]

Good analysis:

Beware of Retirement Tax Gimmicks

https://medium.com/@kamin_83016/beware-of-retirement-tax-gimmicks-9b26246a70b9

this is a great read.  And makes a ton of sense as to why they would do what it sounds like they were planning to do.  It didnt really make sense to me why they would cut trad and not roth but after that read its perfectly clear that would be the only real reason to do it.

[CheapScholar]

Latest report says House GOP and WH are negotiating Pre-Tax and that the current draft of the bill is about halfway between current level ($18,000) and proposed level ($2,400):

http://abcnews.go.com/Politics/house-tax-plan-lowers-caps-401k-cuts-state/story?id=50861872

[ixtap]

Latest report says House GOP and WH are negotiating Pre-Tax and that the current draft of the bill is about halfway between current level ($18,000) and proposed level ($2,400):

http://abcnews.go.com/Politics/house-tax-plan-lowers-caps-401k-cuts-state/story?id=50861872

See, I can get behind that. Eliminating SALT income, but not property and cutting the estate tax, not so much.

[boarder42]

The estate tax needs to stay sounds like the senate will force it to stay.

[TempusFugit]

The medium article author makes this statement: "we should stop the gaming of these retirement accounts — especially Roths — by the super-rich"

It isn't exactly clear to me what he means by 'gaming', but it does make one think of things like the Roth Ladder strategy and the tax 'loophole' regarding cap gains and dividends for people in the 15% bracket.  Changing this part of the tax code could have a more significant effect on some of us in our RE planning than the traditional 401k limits. 

Food for thought. 

[DavidAnnArbor]

There's no gaming involved. Mathematically if you use a traditional pre-tax account or a roth account, you will come out with the same amount of money either way, as long as the tax rate is identical from the time you contribute to the time you withdraw. Tax savings from pre-tax accounts are reinvested in the above scenario.

[Undecided]

There's no gaming involved. Mathematically if you use a traditional pre-tax account or a roth account, you will come out with the same amount of money either way, as long as the tax rate is identical from the time you contribute to the time you withdraw. Tax savings from pre-tax accounts are reinvested in the above scenario.

No, as hinted at in the article, the gaming of Roths by the super rich is stuff like making private company investments inside a self-directed Roth (especially in sweethearts investments shortly before an IPO), to end up with a $100 million plus account that is almost entirely extraordinary capital gains that will be forever shielded from taxes.

[sol]

No, as hinted at in the article, the gaming of Roths by the super rich is stuff like making private company investments inside a self-directed Roth (especially in sweethearts investments shortly before an IPO), to end up with a $100 million plus account that is almost entirely extraordinary capital gains that will be forever shielded from taxes.

Mitt Romney was famous for this as a venture capitalist.  Take over a company and divide it into part A and part B.  Part B borrows money from part A to buy A's assets, leaving B with debt and A with no assets and no value.  Transfer A's (now nearly worthless shares) into your IRA.  Then return the assets from B to A in exchange for the debt, suddenly making A's shares in your IRA worth millions.  A can now buy B back, or B can just be scrapped to the highest bidder.

Either way, you took a hugely valuable corporation and put millions of dollars into your IRA tax shelter.  It's all about manipulating the value of the shares down to a minimum at the moment you put them into the IRA.

[sokoloff]

No, as hinted at in the article, the gaming of Roths by the super rich is stuff like making private company investments inside a self-directed Roth (especially in sweethearts investments shortly before an IPO), to end up with a $100 million plus account that is almost entirely extraordinary capital gains that will be forever shielded from taxes.

Mitt Romney was famous for this as a venture capitalist.  Take over a company and divide it into part A and part B.  Part B borrows money from part A to buy A's assets, leaving B with debt and A with no assets and no value.

I'm not following. At that moment, A has a note from B as an asset, since B borrowed the money from A.

[maizefolk]

I thought the most widely accepted idea was that Mitt Romney had used his Roth IRA to buy portions of the carried interest equity stake in companies Bain Capital was buying up and later reselling.