Republicans Consider Sharp Cut in 401(k) Contribution Limits

[simonsez]

Trump tweeted this morning that there will be NO changes to the 401K.

I realize I'm in the small minority on this board being a Trump supporter, but I was actually thinking all weekend that Trump might tweet something just like this!  I knew he wouldn't let me down, and now I feel silly for even thinking for a second Trump would support such an idea.  Best two votes I ever cast in my life (primary and general).

Damn, you are easy to please.  45 comes up with something stupid, retracts that statement, and now you're happy after dwelling on it all weekend?

I propose that we limit the amount of oxygen a person can breathe to 300L per day.  On second thought, there will be no changes to the allowable amount of oxygen that you breathe.  Time for my constituents to celebrate.  Yay.

[MrMoneySaver]

To be fair (and I don't like Trump, by the way), I don't think the idea was originating from the White House.

[simonsez]

Touche

I respect the office of the President but didn't feel much after his tweet.

I was more amused (and a little jealous) than anything that shooting down something ridiculous could leave a proportion of the citizenry feeling happy rather than just back to the exact way they were before talks about the proposal began.

[talltexan]

Did anyone INCREASE 401K contributions because of this news?

The cynic in me thought they'd float the rumor that it would happen late in the year to goose up stock indices as everyone rushed to make their contributions under the old rules.

[alexpkeaton]

I knew he wouldn't let me down, and now I feel silly for even thinking for a second Trump would support such an idea.  Best two votes I ever cast in my life (primary and general).

The more cynical take is that this was leaked to test the waters for the idea. The response was bad, so they've killed it, but they may still have intended to cut 401k contributions initially.

That, or the democrats leaked it (or just made it up) to get people mad at the GOP. Only the unnamed sources know for sure.

[Luck12]

Perfect example of why people need to read less news. Every little noise becomes a huge waste of time. All the hours wasted... Probably better to spend the time sharpening your skills or doing something that is actually fun.

Don't agree with this at all.   They might've pulled back from this because people called in, commented on news articles, etc.  In the US, people don't pay enough attention to news and politics, that's how we got to where we are. 

Besides, speaking for myself, I'm very capable of walking at chewing gum at the same time. 

[Luck12]

I also don't really trust that this idea might come back so I'm still going to call reps about this.   After all, Trumpcare kept being revived time after time.   That and we all know Trump can't be trusted at all. 

[MrMoneySaver]

Wouldn't the plan, if it ever came to pass, encourage Americans to save less in their 401k plans? And wouldn't Wall Street and its lobbyists hate that?

[doneby35]

oh thank goodness... nobody touches my 401k!

[J_Stache]

The more cynical take is that this was leaked to test the waters for the idea. The response was bad, so they've killed it, but they may still have intended to cut 401k contributions initially.

Winner Winner.

[OurTown]

I despise Trump with the heat of a thousand suns and I don't believe anything he says or tweets.  Nevertheless, I hope and pray that today's tweet means this particular stunt is really and truly dead on arrival.  For a married couple in the 25% marginal bracket that maxes out their his and hers 401(k), reducing the limit to $2,400 would be a $7,800 per year tax hit.  Yikes!

[dude]

Kind of ironic, because DH and I jokingly said after the election, "well, the GOP is about to shit on pretty much every principle we hold dear, but AT LEAST we'll get a little tax cut out of it."  But instead current vague plan would mean somewhere in the neighborhood of an 8-10K/year INCREASE in our taxes.  It's like bizarro world.

I said the same thing.  More along the lines of, "oh well, if the mouthbreathers want to commit economic suicide while my taxes go down, that is their choice so I guess I'll live with it."  And now, between the proposed SALT, mortgage interest and 401k eliminations, I would stand to get fucking shellacked come tax time. We deduct significant amounts under all three.

Not that I think any of these will happen. They are just too extreme, and will piss off too many voters.

[mm1970]

People who have money will always be able to save more than people who do not, regardless of the laws. Laws like the 401k deduction exist to incentivize behavior that is good for society. We really do want people to save for their own retirement so that they're not a burden on society in the future. Pensions are bad because the workers are completely dependent on the company to make good decisions and not go bankrupt (also because they restrict freedom and mobility and lock you into working for the same company for ~20 years). The industry changes or the company made a few bad decisions and goes bankrupt? Whoops, your lifetime of work and "paying into" the pension evaporates overnight (happened to my grandfather). 401k / IRA gives people control over their own destiny with their own money, but they also require a little more personal responsibility. That's a very conservative change from pensions in-and-of itself, and one I'm personally very happy to see. But we already know from direct experience given society's current saving's rate that it's not enough of an incentive to really solve the societal retirement problem.

There were some really good points in here. I just want to say that.

Whenever I hear complaints about the rich, and the middle class, and their tax shelters, I have to just sigh.  It feels, sometimes, like people think it's magic.

I started putting money into an IRA, whatever I could squeak together, at 22. 
I started putting money into a 401k, whatever I could squeak together, as soon as I got out of the military, at 27.

Fast forward 20 years, marriage, spouse getting a job, raises, promotions (though for me, not great ones), two kids.  Of course we are maxing out our 401k's because that's how we are.  It wasn't magic, it took discipline for 25 years.  (For the record, because we pay AMT, I doubt we get a huge 401k benefit on our taxes).

But I think people in my income range need to pay more taxes.  I've said it many times.  If by paying more taxes, it means my friends can get health care/ insurance, I'll pay more taxes.

[sokoloff]

https://twitter.com/realDonaldTrump/status/922428118685581313

@realDonaldTrump

There will be NO change to your 401(k). This has always been a great and popular middle class tax break that works, and it stays!

To keep it balanced against empty promises of both parties, that statement has the same amount of credibility to me as "We're going to build a wall and Mexico is going to pay for it" and "If you like your health care plan, you'll be able to keep your health care plan."

[Gin1984]

To be fair (and I don't like Trump, by the way), I don't think the idea was originating from the White House.

No, it came from the House, as the fiscal bills are suppose to.  So his tweet have very little to do with reality.

[Zamboni]

Think about this: At $2400 saved a year, and in the absence of interest or market gains, average Joe has less than $100K in his retirement account after 40 YEARS of working and contributing the proposed maximum.

Basically they want even more people to have to work until they die . . . fuck those fuckers in congress who support this.

(and yes, I do understand there will be compound interest . . . but I think the less than $100K of contributions in a long, 40-year career is really telling.)

$2400 per year at 7.5% compounded rate of return ends up with $680,000.  Not exactly peanuts.  Of course if inflation is 2.5%, then the real value after 40 years is $237,000.

That’s more than the average people save and one would still have taxable accounts to invest in.

That's why most people are too poor to retire . . . google "retirement crisis."

[smallstache]

Did anyone INCREASE 401K contributions because of this news?

The cynic in me thought they'd float the rumor that it would happen late in the year to goose up stock indices as everyone rushed to make their contributions under the old rules.

Yes, I contributed the max, then I contributed some more.

What does a floated proposal on 401k contribution caps have to do with stock indices?  That is a such a long stretch.

[Inaya]

The fact is, if you want Euro-style social programs, you need Euro-style taxes, which means higher taxes on everyone. If you want a large euro-style social safety net like we have with Social Security, then everyone has to pay, like is the case specifically mentioned by sherr above. Everyone does pay for that and Medicare/Medicaid. Similarly, tuition-free universities and universal health care means everyone has to pay more taxes, not just rich people. One could argue most people would come out net ahead, with their premium payments to private corporations shifting to a bigger (but maybe net smaller) tax bill. That's still going to be a big ole' giant tax increase on the middle class with some clear winners and some clear losers with respect to the net.

Right, but there's a difference between paying higher taxes to fund social programs vs. paying higher taxes to line corporations' and wealthy campaign donors' pockets. I very much doubt we'll be seeing the former in this case.

And, in my mind, Trump tweeting that it's not going to happen almost guarantees it's going to happen. Because he lives in Opposite Land, apparently.

[NextTime]

His tweet means nothing.

If they get a tax reform bill through both houses, Trump will sign it, regardless of what's in it.

[talltexan]

Did anyone INCREASE 401K contributions because of this news?

The cynic in me thought they'd float the rumor that it would happen late in the year to goose up stock indices as everyone rushed to make their contributions under the old rules.

Yes, I contributed the max, then I contributed some more.

What does a floated proposal on 401k contribution caps have to do with stock indices?  That is a such a long stretch.

People increase contributions before the new rules take effect --> more money going into markets raises prices

[Scandium]

Did anyone INCREASE 401K contributions because of this news?

The cynic in me thought they'd float the rumor that it would happen late in the year to goose up stock indices as everyone rushed to make their contributions under the old rules.

Yes, I contributed the max, then I contributed some more.

What does a floated proposal on 401k contribution caps have to do with stock indices?  That is a such a long stretch.

People increase contributions before the new rules take effect --> more money going into markets raises prices

I think one article said there were 55 million people using 401k accounts, and the average contribution is around $5000 per year. That's $275 billion per year. Or ~1/3 the market cap of Apple. I'm not sure there would be much of an effect even if everyone maxed.

As for the proposal it's obviously dumb and DOA. I would take a $15k limit if they made it portable and independent of employer though. That seems like a "republican" thing to do. Why is retirement tied to my employer? And why burden firms with being retirement plan managers? Idiotic. There's certainly a pro small-business case to be made.

[MrMoneySaver]

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

[NextTime]

I agree.  The average guy contributing $6k isn't going to bump it up to $7-8k for three months because of this change.

I'll tell you what will happen if this change goes through though. The average guy contributing $6k IS going to reduce his contribution to $4k when he gets his first check and his take home pay is lower.

[Just Joe]

Think about this: At $2400 saved a year, and in the absence of interest or market gains, average Joe has less than $100K in his retirement account after 40 YEARS of working and contributing the proposed maximum.

Basically they want even more people to have to work until they die . . . fuck those fuckers in congress who support this.

(and yes, I do understand there will be compound interest . . . but I think the less than $100K of contributions in a long, 40-year career is really telling.)

$2400 per year at 7.5% compounded rate of return ends up with $680,000.  Not exactly peanuts.  Of course if inflation is 2.5%, then the real value after 40 years is $237,000.

Mr. Working stiff might not have any real awareness of savings vs investments so he might not be getting 7.5%. He might be getting 2% in a bank account.

"Don't agree with this at all.   They might've pulled back from this because people called in, commented on news articles, etc.  In the US, people don't pay enough attention to news and politics, that's how we got to where we are. "

People pay attention to the rumor and drama, not enough to the substance of what the government and politicians are doing. Words vs action.

[DavidAnnArbor]

All in return for lower (and fewer) tax brackets.

So I certainly see the appeal (and benefits) of removing lots of complicated deductions that individually benefit subsets of people to produce lower tax rates for everyone.

Why are fewer tax brackets better than more tax brackets? Assuming you're not arguing for a flat tax (no different tax brackets), that means you have at least two tax brackets. All things being equal, wouldn't it make sense to slowly phase in higher tax rates through several intermediate brackets instead of a sudden sharp increase?

"Look! We simplified the tax code! (Just don't look over here where we "simplified" it in a way that just happens to benefit our donors more than you.)"

+1

[DavidAnnArbor]

Are we tired of winning yet ?

[Ocinfo]

Well, this didn’t take too long to turn right back around...House Ways and Means Committee Chairman doesn’t rule out changing 401k, WaPo https://www.washingtonpost.com/news/business/wp/2017/10/25/house-gop-tax-leader-threatens-to-break-trumps-promise-not-to-change-401k-rules/?hpid=hp_hp-top-table-main_taxplan-1006am%3Ahomepage%2Fstory&utm_term=.29a9e6e4f222






Sent from my iPhone using Tapatalk

[ixtap]

This was our breakfast discussion this morning. It sucks that the 401k is tied to your employer. I could see giving up 401k under the following:

-raise IRA limits - this could even be a compromise. Raise IRA limits to ~$18k, therefore the total contributions allowed are now less than they were before, but still significant.
-require those companies offering direct deposit to offer a paycheck split (many already do, even if few take advantage of it) so that pay can be directly deposited to IRA. Perhaps even have employers take this deposit into account when withholding taxes. So, it would work similar to a 401k, but the employee would have more control (ie, avoid admin fees, choose funds, new job would be contributing to the same account, etc.)

[sherr]

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

Yes but I wouldn't call that "pretty portable". Your company decides which company will manage your 401k and which funds you will have access to. If you are self-employed (or an "independent contractor") you can start your own, but if you're an actual employee of a company that doesn't happen to offer a 401k you're completely out of luck and can't possibly get one.

I agree that decoupling it from your employer makes sense and is a very "Republican" thing to do. Requires a little more initiative from the individuals, but is unambiguously a good thing for those that have it. That's not actually a possibility worth discussing though because it wouldn't help raise tax revenue which is the whole reason they're talking about 401ks now.

[OurTown]

Email your congress critters:  https://www.saveoursavings.org/get-involved

[sokoloff]

-raise IRA limits - this could even be a compromise. Raise IRA limits to ~$18k, therefore the total contributions allowed are now less than they were before, but still significant.

Would definitely support.

-require those companies offering direct deposit to offer a paycheck split (many already do, even if few take advantage of it) so that pay can be directly deposited to IRA. Perhaps even have employers take this deposit into account when withholding taxes. So, it would work similar to a 401k, but the employee would have more control (ie, avoid admin fees, choose funds, new job would be contributing to the same account, etc.)

You can already adjust your withholdings with a W-4 and most every IRA custodian has fallen all over themselves to make auto-investment via ACH an easy thing, so I'm not sure that I'd ever elect my employer to be involved. They can put the money in my bank account and I can move it from there to IRA automatically already and adjust my W-4 already. (I get that it's slightly harder this way and precludes auto-enrollment. Auto-enrollment I buy as a desirable thing.)

[OurTown]

Ruh-roh.  http://thehill.com/business-a-lobbying/357154-trump-says-he-can-negotiate-on-401k-tax-break

[thenextguy]

Ruh-roh.  http://thehill.com/business-a-lobbying/357154-trump-says-he-can-negotiate-on-401k-tax-break

Nobody saw that coming!

[OurTown]

Nobody expects the Spanish Inquisition!

[Inaya]

Ruh-roh.  http://thehill.com/business-a-lobbying/357154-trump-says-he-can-negotiate-on-401k-tax-break

Oh goodie. The Great Negotiator has come to save us all.

[sol]

Ruh-roh.  http://thehill.com/business-a-lobbying/357154-trump-says-he-can-negotiate-on-401k-tax-break

Oh goodie. The Great Negotiator has come to save us all.

By completely reversing his absolutist position from yesterday?  Again?

More likely one of his babysitters explained that he doesn't get to write laws, and with a surprised pouty face he tried to save face on Twitter by publicly backtracking while fully conceding any authority he previously pretended to have.  It's been almost a year and I swear he's still failing civics101.

[ontheheel]

Ruh-roh.  http://thehill.com/business-a-lobbying/357154-trump-says-he-can-negotiate-on-401k-tax-break

This is a roller coaster...I need to stop paying attention at least until something resembling a plan is released. Should be next week sometime.

[2Birds1Stone]

Saw this and laughed. No comment except to say good luck with that, fellas. In terms of pure politics, this proposal might actually be more harmful than having a deranged megalomaniac as a standard bearer. Combine the two and you've got a recipe for a wave election in 2018.

Saw this thread and laughed as well ;)

[aspiringnomad]

Too funny. Apparently he's also the world's worst negotiator; "Take a look at my hand, now watch me bluff!"

I mean is this guy competent in any way, shape, or form? How is he with the Legos at the day care center?

[slow hand slow plan]

https://finance.yahoo.com/news/republicans-may-planning-slash-amount-133442541.html


they are trying to spin it as "good for millennials" HAHA

[Gin1984]

I don't get people sometimes.  Instead of complaining on here, call your rep, email your rep, especially if they are part GOP.  If they hear enough people saying no, it won't go through but if you wait until it is an main part of their plan, you won't be able to change a damn thing.  Why not DO something?

[thenextguy]

I don't get people sometimes.  Instead of complaining on here, call your rep, email your rep, especially if they are part GOP.  If they hear enough people saying no, it won't go through but if you wait until it is an main part of their plan, you won't be able to change a damn thing.  Why not DO something?

How do you know people aren't doing that? The two acts aren't mutually exclusive.

[tarheeldan]

I don't get people sometimes.  Instead of complaining on here, call your rep, email your rep, especially if they are part GOP.  If they hear enough people saying no, it won't go through but if you wait until it is an main part of their plan, you won't be able to change a damn thing.  Why not DO something?

We can do both :-) I just e-mailed my Rep using her website form.

[thenextguy]

https://finance.yahoo.com/news/republicans-may-planning-slash-amount-133442541.html


they are trying to spin it as "good for millennials" HAHA

Did I miss something or does the article not explain why it's better for millennials? I see that in the headline, but not in the article.

[maizefolk]

https://finance.yahoo.com/news/republicans-may-planning-slash-amount-133442541.html


they are trying to spin it as "good for millennials" HAHA

Did I miss something or does the article not explain why it's better for millennials? I see that in the headline, but not in the article.

As far as I can tell: some retirement advisers think that Roth is better than traditional, so this change world force everyone (including millennials/snake people) into saving in Roths.

They also suggest that people would save the same amount of month in a Roth 401k as in a traditional 401k which would result in a higher effective retirement savings (after tax), since $18k of post-tax Roth money translates into more spending in retirement than $18k of pre-tax traditional money (assuming you've saving enough that you're paying income tax on the withdrawals).

So essentially the perennial Roth vs Traditional debate with a dash of clickbait headline through into the mix.

[Gyosho]

I make over 6 figures and pay very little in taxes. Last year my Medicare Wages were $120,000. I paid $5000 in federal taxes and $1800 in state taxes. I am lucky enough to work for a public institution that offers both a 403b and 457b savings account, so I can stash away huge amounts of money on a tax-deferred basis.

If the 401(k) cut was passed, and trickled down to the 403b and 457b, I would retire immediately rather than pay that huge increase in my taxes.

[CheapScholar]

Now Trump is threatening veto if 401(k) is touched.

http://www.washingtonexaminer.com/white-house-issues-trump-veto-threat-over-401k-cuts/article/2638674

I'm proud of my President.

[talltexan]

The Border-adjustment tax would have--indirectly--impacted the Roth as much as this, yet it seems like there's more energy in the discussion now than there was during the period when that Border-adjustment tax looked possible. Are we mustachians just much more keyed into pre-tax savings?

[sokoloff]

If you consume much, much less imported material than the average American, you care less about the border adjustment tax. (It also seemed to me to be much less likely to happen, since the trade reduction that would cause would seem to be catastrophic to many people.)

[Inaya]

Now Trump is threatening veto if 401(k) is touched.

http://www.washingtonexaminer.com/white-house-issues-trump-veto-threat-over-401k-cuts/article/2638674

I'm proud of my President.

Mostly just makes my neck hurt from watching the ping ponging.