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Learning, Sharing, and Teaching => Investor Alley => Topic started by: kenmoremmm on October 20, 2017, 10:08:37 PM

Title: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: kenmoremmm on October 20, 2017, 10:08:37 PM
https://www.nytimes.com/2017/10/20/us/politics/republicans-tax-401-k.html
Quote
WASHINGTON — House Republicans are considering a plan to sharply reduce the amount of income American workers can save in tax-deferred retirement accounts as part of a broad effort to rewrite the tax code, according to lobbyists, tax consultants and congressional Democrats.

It is unclear if Republicans will ultimately include a cap on contributions in the tax bill that they are expected to release in the coming weeks. Such a move would almost certainly prompt a vocal backlash from middle-class workers who save heavily in such retirement accounts and from the asset management industry.

The proposals under discussion would potentially cap the annual amount workers can set aside to as low as $2,400 for 401(k) accounts, several lobbyists and consultants said on Friday. Workers may currently put up to $18,000 a year in 401(k) accounts without paying taxes upfront on that money; that figure rises to $24,000 for workers over 50. When workers retire and begin to draw income from those accounts, they pay taxes on the benefits.

Rumors have circulated for months that negotiators were debating including a cap as a way to help offset the revenue loss from a reduction in business tax rates that Republicans have put at the center of their plan. Reducing contribution limits would be, in effect, an accounting maneuver that would create space for tax cuts by collecting tax revenue now instead of in the future.

Such a move would be likely to push Americans to shift their savings to so-called Roth accounts, where contributions are taxed immediately, and not when they are drawn out as benefits. That would increase federal tax receipts for the short run.

The congressional Joint Committee on Taxation estimates that tax exclusions for individual retirement contributions will cost the federal government $115 billion for the 2018 fiscal year. That is just a fraction of the $1.5 trillion tax cut that Republicans are aiming to enact.

In addition to being politically problematic, including a cap could also complicate the tax bill’s prospects in the Senate. Under the rules of budget reconciliation — the method Republicans are employing to avoid a Democratic filibuster of the bill — legislation cannot increase budget deficits after a decade. Shifting revenue by lowering 401(k) limits “raises money early, but loses money late, and that’s exactly the opposite of what you want in a reconciliation bill,” said Rohit Kumar, a former Senate aide who leads the tax policy services practice at PricewaterhouseCoopers, an accounting firm, in Washington.

Republicans drafting the tax bill have kept its details closely held, and they would not comment on Friday about whether 401(k) changes were under discussion. Republicans on the House Ways and Means Committee “are developing pro-growth tax reform policies that will encourage and support retirement savings for all Americans,” a committee spokeswoman said.

The tax framework that President Trump and congressional Republican leaders released last month promised to retain “tax benefits that encourage work, higher education and retirement security.” It left the door open to changes in the current system, saying that “the committees are encouraged to simplify these benefits to improve their efficiency and effectiveness.”

Democrats have seen firsthand the perils of proposing changes to savings accounts. In 2015, an outcry forced President Barack Obama to quickly back off his proposal to change the tax benefit of college savings plans known as 529 accounts.

On the Senate floor on Thursday, Senator Gary Peters, Democrat of Michigan, warned that the Republican majority was “keeping open the possibility of raising taxes on Americans who are trying to save for their retirement.”

In a statement on Friday, Representative Richard E. Neal of Massachusetts, the top Democrat on the Ways and Means Committee, said that the Republican proposals “would hurt those saving responsibly for retirement at a time when an alarming number of families have fallen behind in their retirement savings.”

A study by researchers at Harvard and Yale, released in 2015, found no evidence that the timing of when savings accounts are taxed affects how much Americans save.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: aspiringnomad on October 20, 2017, 10:36:22 PM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Taran Wanderer on October 20, 2017, 10:41:50 PM
I had to chuckle at the political insanity of this. Also because I'm happy our retirement is pretty much funded already, and anything we save from here is gravy. And because I've been going the Roth route anyway.

But still, these are republicans who supposedly treasure personal responsibility? And they want to gut a program that is an amazing incentive for personal responsibility?  Unbelievable.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: EngineeringFI on October 21, 2017, 08:58:54 AM

But still, these are republicans who supposedly treasure personal responsibility? And they want to gut a program that is an amazing incentive for personal responsibility?  Unbelievable.

I had this exact same thought, it feels like a remarkably non-republican thing to propose. I can't wait to see an interview with a politician who tries to justify this through the lens of "conservatism", that's going to be some serious double-speak.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Mr. Boh on October 21, 2017, 09:30:51 AM
As with everything else the current republican congress/administration proposes, I'll believe it when I see it. So far they have achieved very little.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: kayvent on October 21, 2017, 10:19:54 AM

But still, these are republicans who supposedly treasure personal responsibility? And they want to gut a program that is an amazing incentive for personal responsibility?  Unbelievable.

I had this exact same thought, it feels like a remarkably non-republican thing to propose. I can't wait to see an interview with a politician who tries to justify this through the lens of "conservatism", that's going to be some serious double-speak.

I am neither Republican nor share much of their positions. I am Canadian, but I can give a few lines of defence.

- The 401k system benefits those with money more than those without. In this day and age where people at the bottom are struggling, can we really afford these boutique programs that disproportionately benefit the rich?

- The middle class need to pay their fair share. If you compare North American taxes with European taxes, the uber rich and corporations in both pay a lot in taxes. The difference is that the middle class in North America pay peanuts.

- It complicates things and creates some perverse incentives. Canada’s analog are RRSPs. Their implementation and implications drive a wrench in a lot of programs. I have a student loan and a child. Because CCB is derived from AFNI and RRSP contributions reduce AFNI, it is financially better to ignore the loan in favour of RRSP contributions. (1) this is ludicrous that saving money gives me money to raise my child (2) this is a pain to know and only those who do the calculation by hand would discover this (or had an accountant)

I’d personally feel better about the Canadian tax system if we scraped RRSPs and TFSAs (of course with a grandfather exception). Simplifies the tax code, broadens the base, stops some tax avoidance, and the extra money collected can go to help the poor and struggling.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: smallstache on October 21, 2017, 10:46:23 AM
No. Congress should take it a step further and eliminate all tax breaks--retirement savings, college savings/loan interest deductions, mortgage interest, carried interest, oil and gas tax breaks, child tax credits, personal exemptions, standard deductions, capital gains rates, timber and mining tax breaks.

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

Also, corporate rates that equal personal rates.

That is true transparency in the tax code.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sokoloff on October 21, 2017, 10:50:41 AM
I’d personally feel better about the Canadian tax system if we scraped RRSPs and TFSAs (of course with a grandfather exception). Simplifies the tax code, broadens the base, stops some tax avoidance, and the extra money collected can go to help the poor and struggling.
Assuming it's like 401K and traditional IRA in the US, this is much more a deferral of taxes than a reduction. The government can get its money now or (virtually) invest alongside the individual for a few decades and then get its money later. Most of these accounts are invested at return CAGRs over the T-bill rate, so the government is getting more money if it invests alongside than if it takes it now. (Yes, they get to double-dip a bit when they take the money now and tax on gains later, but the second dip is largely LTCG rather than ordinary income for savvy investors.)

But high-order, this is a money-now vs more-money-later discussion, not money-now vs nothing-later.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: maizefolk on October 21, 2017, 10:59:07 AM
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?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: protostache on October 21, 2017, 11:32:52 AM
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.)"
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: bacchi on October 21, 2017, 11:43:17 AM
But high-order, this is a money-now vs more-money-later discussion, not money-now vs nothing-later.

Yes, "money-now" might actually work if there was a serious plan about reducing the debt but -- no surprise -- the majority of Republicans are all about reducing taxes and increasing spending. It's as if they want to repeat the Kansas experiment for the entire nation.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Ocinfo on October 21, 2017, 11:56:04 AM
But high-order, this is a money-now vs more-money-later discussion, not money-now vs nothing-later.

Yes, "money-now" might actually work if there was a serious plan about reducing the debt but -- no surprise -- the majority of Republicans are all about reducing taxes and increasing spending. It's as if they want to repeat the Kansas experiment for the entire nation.

The money now part is all that matters. Due to the process being used, they are only allowed to consider the effects out to 10 years. So, by making more money taxable now, it lets them fudge the numbers even if it means less total tax revenue over greater than 10 years.


Sent from my iPhone using Tapatalk
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: smallstache on October 21, 2017, 12:03:58 PM
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?

I personally wouldn't mind a flat tax (or all the tax benefits that I enjoy now...I made $330,00 last year and paid $6770 in tax...2% in federal rate).  I think there is some merit in a graduated income tax policy, but the current seven-rate structure + ACA surcharge tax is way too many.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CheapScholar on October 21, 2017, 12:31:00 PM
As a Republican this idea disappoints me.  The idea of shifting towards Roth is nice in theory but eventually the Democrats will raise the tax rates AND at 37 I'm skeptical I'll ever withdraw money from Roth and actually not pay taxes.  I could see a Bernie Sanders type saying "we're just going to tax the rich people with a million dollars in their Roth accounts so the middle class can get a break."

My wife and I max out 403b plans right now.  Personally, we would save a LOT less if this happened.  We have a lot invested already.  I'd probably pay off the mortgage and go on two cruises per year if they capped my pretax advantage at $2,400.

Like someone else said, though, I doubt this happens. 
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Taran Wanderer on October 21, 2017, 02:33:33 PM
I'd probably pay off the mortgage and go on two cruises per year if they capped my pretax advantage at $2,400.

Funny, I was thinking along the same lines.  There are a lot of trips I would like to take, and maxing our tax deferred accounts takes a pretty big chunk out of the travel budget.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: frugledoc on October 21, 2017, 04:03:20 PM
Seems like this would piss off your typical republican voter, but I'm in the UK.

For comparison, our income taxes in the UK are much higher but we have better tax shelters:
- 20k per year into our version of Roth
- 40k per year into our version of 401k (with 1 million lifetime allowance), tapered for those earning more than 150k

I do wish people would stop referring to people who are paying taxes and not being a burden on the state as rich.

Rich is when you have so much money you can spend as much as you want forever, with no chance of running out of money, even if you are buying a new lambo every few months.

Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: ixtap on October 21, 2017, 04:06:37 PM
Seems like this would piss off your typical republican voter, but I'm in the UK.

For comparison, our income taxes in the UK are much higher but we have better tax shelters:
- 20k per year into our version of Roth
- 40k per year into our version of 401k (with 1 million lifetime allowance), tapered for those earning more than 150k

I do wish people would stop referring to people who are paying taxes and not being a burden on the state as rich.

Rich is when you have so much money you can spend as much as you want forever, with no chance of running out of money, even if you are buying a new lambo every few months.

No, that is filthy rich.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: maizefolk on October 21, 2017, 04:50:44 PM
I do wish people would stop referring to people who are paying taxes and not being a burden on the state as rich.

Rich is when you have so much money you can spend as much as you want forever, with no chance of running out of money, even if you are buying a new lambo every few months.

In my experience, rich is making at least twice as much money as the people who are discussing what the threshold for rich is. ;-)
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Telecaster on October 21, 2017, 04:54:29 PM

But still, these are republicans who supposedly treasure personal responsibility? And they want to gut a program that is an amazing incentive for personal responsibility?  Unbelievable.

I had this exact same thought, it feels like a remarkably non-republican thing to propose. I can't wait to see an interview with a politician who tries to justify this through the lens of "conservatism", that's going to be some serious double-speak.

It is exchanging increased tax receipts now, for decreases tax receipts in the future.  Kicking the can down the road in other words. 

There is nothing more Republican than that. 
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: teen persuasion on October 21, 2017, 06:25:06 PM
Yikes, I just ran the math on how this would change our taxes.  It would cost us an additional $8200.  That's ridiculous on $50k AGI.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: kayvent on October 21, 2017, 06:40:03 PM
I do wish people would stop referring to people who are paying taxes and not being a burden on the state as rich.

Please forgive my ignorance of the British tax system and indulge me for a second because I honestly forget more about your system than I recall. Does the general middle-class bourgeois in the UK pay a significant amount of taxes?

In Canada and the USA, few people pay net taxes. For example, someone may pay income tax and sales tax or property tax but if you factor in the tax benefits they receive (ex. the Canadian Child Benefit), their effective net tax rate is pretty low. I paid around 240$ in net Federal & Provincial taxes last year not including VAT taxes (some napkin math leads me to guess ~1500).

On these forums, we make spectacular incomes. I’m in the top 97th in Canada for my age. Some Americans on these forums make me look like a pauper. If you meander to the 2016 tax rate thread (https://forum.mrmoneymustache.com/taxes/your-2016-net-income-tax-rate/) you’d notice that a lot of us are paying single digit or negative effective tax rates. We’re not atypical in this area though. Depending on whose numbers you refer to, about ~10% of the population pay almost all of the taxes (excluding taxes corporations pay).

I live in a great country. Justin Trudeau thinks I shouldn’t have to pay for it. I think us greedy, rich middle class people should. By and large, we aren’t doing much useful with the money they aren’t taxing us with except consuming and getting into debt.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: threefive on October 21, 2017, 07:40:41 PM
- The middle class need to pay their fair share. If you compare North American taxes with European taxes, the uber rich and corporations in both pay a lot in taxes. The difference is that the middle class in North America pay peanuts.

I'd love to hear a Bernie-bro admit to this, because it's true. I'm a six-figure earner in the US, beating the snot out of the average US household income and straight-up curb stomping the world average. My effective federal tax rate will be <1% this year, mostly because of 401k deductions and for the asinine reason that my employer provides a health insurance plan and I don't have to purchase one myself, so now it's magically completely tax deductible while keeping the standard deduction. And kids. My ability to procreate definitely warrants that $2k tax haircut because ... something, something, something. ~50% of the US population doesn't pay federal income tax at all. We could jack up the rates to 100% for incomes over $1 million and it wouldn't come close to raising enough revenue to pay for some Bernie-style social programs. The reality is, and lefty Demos need to admit and come clean, that if we want universal health insurance, free public universities, free puppy daycare and lollipops, then taxes need to go up on the middle class, and a lot. A little VAT action would be needed, too, just to make sure we get some more poor-people skin in the game. The American Left has been trying to sell a rainbow by promising Euro-style social programs for the cost of a few drops of rich-people blood. It sure is pretty, but unfortunately it's all just water vapor. At least now the Repubs are finally being explicit and clear about their desire to lower taxes for business and rich people by making the (mostly upper-) middle class pay their fair share, and providing a big, beautiful wall in return.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: theolympians on October 21, 2017, 08:38:33 PM
I saw this click bait like everyone else here.  That is all it is.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Travis on October 21, 2017, 08:50:37 PM
I do wish people would stop referring to people who are paying taxes and not being a burden on the state as rich.

Rich is when you have so much money you can spend as much as you want forever, with no chance of running out of money, even if you are buying a new lambo every few months.

In my experience, rich is making at least twice as much money as the people who are discussing what the threshold for rich is. ;-)

Some of us had a fun discussion on this question a while back.

https://forum.mrmoneymustache.com/welcome-to-the-forum/defining-'rich'/ (https://forum.mrmoneymustache.com/welcome-to-the-forum/defining-'rich'/)

https://forum.mrmoneymustache.com/welcome-to-the-forum/how-to-know-if-you're-rich/ (https://forum.mrmoneymustache.com/welcome-to-the-forum/how-to-know-if-you're-rich/)
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: obstinate on October 21, 2017, 10:09:43 PM
See as a liberal this actually strikes me as the second defensible idea the Republicans have put forth. The first being cutting the corporate tax rate.

Now, if they're just doing this to give a tax cut to billionaires who don't really benefit from 401ks, that's another story. And, based on what they've put forward so far, that's exactly what's happening. But in isolation, I support cutting 401k contribution limits.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: fattest_foot on October 21, 2017, 10:39:44 PM
- The middle class need to pay their fair share. If you compare North American taxes with European taxes, the uber rich and corporations in both pay a lot in taxes. The difference is that the middle class in North America pay peanuts.

I'd love to hear a Bernie-bro admit to this, because it's true. I'm a six-figure earner in the US, beating the snot out of the average US household income and straight-up curb stomping the world average. My effective federal tax rate will be <1% this year, mostly because of 401k deductions and for the asinine reason that my employer provides a health insurance plan and I don't have to purchase one myself, so now it's magically completely tax deductible while keeping the standard deduction. And kids. My ability to procreate definitely warrants that $2k tax haircut because ... something, something, something. ~50% of the US population doesn't pay federal income tax at all. We could jack up the rates to 100% for incomes over $1 million and it wouldn't come close to raising enough revenue to pay for some Bernie-style social programs. The reality is, and lefty Demos need to admit and come clean, that if we want universal health insurance, free public universities, free puppy daycare and lollipops, then taxes need to go up on the middle class, and a lot. A little VAT action would be needed, too, just to make sure we get some more poor-people skin in the game. The American Left has been trying to sell a rainbow by promising Euro-style social programs for the cost of a few drops of rich-people blood. It sure is pretty, but unfortunately it's all just water vapor. At least now the Repubs are finally being explicit and clear about their desire to lower taxes for business and rich people by making the (mostly upper-) middle class pay their fair share, and providing a big, beautiful wall in return.

I'd say the difference between the US and other counties, however, is that their middle classes are able to draw from more programs than the middle class in the US.

Basically, if you're in the top two quintiles, you're the only ones actually paying taxes, but you're also not eligible for any of the socialistic programs that middle class tax payers in other countries get. We're taxed lower, sure, but we're also not getting all the extra benefits of what those increased taxes would mean.

If the US government wanted to start up UHC, more than likely a lot of us would end up rolling whatever we pay to be covered under our employer plans to taxes instead. It'd probably end up being close to a break even amount. Our "tax rate" would increase, but all things considered our situation would remain the same.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: spjulep on October 21, 2017, 10:44:45 PM
As a Republican this idea disappoints me.  The idea of shifting towards Roth is nice in theory but eventually the Democrats will raise the tax rates AND at 37 I'm skeptical I'll ever withdraw money from Roth and actually not pay taxes.  I could see a Bernie Sanders type saying "we're just going to tax the rich people with a million dollars in their Roth accounts so the middle class can get a break."
As relatively few Americans contribute to or max out their 401k plans, this group is an easy target without a lot of political clout. Republicans can scrape together a few funds to offset incredible gains they propose to give to corporations and the wealthy. Of course, those who are truly wealthy are sheltering their assets through other means and won't be too bothered losing the 401k deduction. A Bernie Sanders type would not tax the middle (or perhaps, upper middle) class to benefit corporations and the 1%; it's astonishing to me that the Republicans can sell this to their constituents. I recommend the book What's the Matter with Kansas, which shows how poor constituents in red states have been tricked into voting against their own economic interests through propaganda, exemplified by the fear of what a Bernie Sanders type would do.

By the way, how many breaks for the actual middle class are proposed in the current bill?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CheapScholar on October 22, 2017, 06:23:58 AM
I hear you, spjulep.  I've read the book you suggested years ago and I agree the GOP is far from infallible, especially when it comes to the tax code.  I don't feel I've been tricked by the party, I know they will take short term economic gains to bolster economic indicators.  I vote GOP more for social issues to be honest. 

But, I'm still very skeptical of Roth.  My wife and I have Roth accts but mainly because there were some years where we did so well we had to put money somewhere and it was more like 'what the hell, open Roths.'

For me, I like the tax benefit up front, which is what many of the articles out there are concluding.  I probably wouldn't be a player in Mnuchin's switch to Roth idea, mainly because I've built up a solid nest egg already and I don't plan on retiring for 13 more years.  So yeah, my wife and I would probably be spending that $18,500 + $18,500 per year if we couldn't get the upfront tax advantage.  Perhaps that's what the architects of the plan want?  Ironically, I'd probably travel to Europe at least once a year and blow a lot of that money abroad. 
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: maizefolk on October 22, 2017, 07:21:50 AM
- The middle class need to pay their fair share. If you compare North American taxes with European taxes, the uber rich and corporations in both pay a lot in taxes. The difference is that the middle class in North America pay peanuts.

I'd love to hear a Bernie-bro admit to this, because it's true. I'm a six-figure earner in the US, beating the snot out of the average US household income and straight-up curb stomping the world average. My effective federal tax rate will be <1% this year, mostly because of 401k deductions and for the asinine reason that my employer provides a health insurance plan and I don't have to purchase one myself, so now it's magically completely tax deductible while keeping the standard deduction. And kids. My ability to procreate definitely warrants that $2k tax haircut because ... something, something, something. ~50% of the US population doesn't pay federal income tax at all. We could jack up the rates to 100% for incomes over $1 million and it wouldn't come close to raising enough revenue to pay for some Bernie-style social programs. The reality is, and lefty Demos need to admit and come clean, that if we want universal health insurance, free public universities, free puppy daycare and lollipops, then taxes need to go up on the middle class, and a lot. A little VAT action would be needed, too, just to make sure we get some more poor-people skin in the game. The American Left has been trying to sell a rainbow by promising Euro-style social programs for the cost of a few drops of rich-people blood. It sure is pretty, but unfortunately it's all just water vapor. At least now the Repubs are finally being explicit and clear about their desire to lower taxes for business and rich people by making the (mostly upper-) middle class pay their fair share, and providing a big, beautiful wall in return.

I'd say the difference between the US and other counties, however, is that their middle classes are able to draw from more programs than the middle class in the US.

Basically, if you're in the top two quintiles, you're the only ones actually paying taxes, but you're also not eligible for any of the socialistic programs that middle class tax payers in other countries get. We're taxed lower, sure, but we're also not getting all the extra benefits of what those increased taxes would mean.

If the US government wanted to start up UHC, more than likely a lot of us would end up rolling whatever we pay to be covered under our employer plans to taxes instead. It'd probably end up being close to a break even amount. Our "tax rate" would increase, but all things considered our situation would remain the same.

I don't think this is quite right. Yes a large fraction of american households don't pay net federal income tax, but it isn't as simple as sorting american households by income and saying every above this line pays taxes and everyone below this line doesn't. Lots of people make a lot of money and pay little tax, some people make moderate amounts of money and end up owning non-trivial amounts of federal income tax.

Take the example of threefive and me. I don't know what threefive actually makes, but the scenario described would be possible for someone with my income, so let's assume the two of us make about the same amount of money and are in the top quintile of household incomes in the USA. I paid an effective federal tax rate of ~20% last year, threefive paid ~1%.

(Not to pick on you threefive. Thanks for posting a real-world example of the opposite end of the distribution of possible tax outcomes for relatively high income earners, and congrats!)
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Indexer on October 22, 2017, 08:01:10 AM
Switching everyone from Traditional 401ks to Roth 401ks doesn't improve the fiscal situation. It just 'moves' it. Millions of people will lose tax deductions today in exchange for never paying taxes in the future. This makes the Republican's tax cut deficit neutral in the short term, but it does so by moving the giant deficit into the future.

I hate the plan for the simple reason that it just further proves the Republicans aren't the party of fiscal responsibility.

I am for reforming the tax code. I'm even okay with losing deductions if it cleans everything up, simplifies the tax code, and balances the budget. If you don't balance the budget I don't see the point of the other parts.

Side note: the economy is good right now. If you are going to balance the budget 'this' is the time to do it. Then we can start running deficits again the next time we hit a recession.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sherr on October 22, 2017, 09:04:35 AM
- The middle class need to pay their fair share. If you compare North American taxes with European taxes, the uber rich and corporations in both pay a lot in taxes. The difference is that the middle class in North America pay peanuts.

I'd love to hear a Bernie-bro admit to this, because it's true. I'm a six-figure earner in the US, beating the snot out of the average US household income and straight-up curb stomping the world average. My effective federal tax rate will be <1% this year, mostly because of 401k deductions and for the asinine reason that my employer provides a health insurance plan and I don't have to purchase one myself, so now it's magically completely tax deductible while keeping the standard deduction. And kids. My ability to procreate definitely warrants that $2k tax haircut because ... something, something, something. ~50% of the US population doesn't pay federal income tax at all. We could jack up the rates to 100% for incomes over $1 million and it wouldn't come close to raising enough revenue to pay for some Bernie-style social programs. The reality is, and lefty Demos need to admit and come clean, that if we want universal health insurance, free public universities, free puppy daycare and lollipops, then taxes need to go up on the middle class, and a lot. A little VAT action would be needed, too, just to make sure we get some more poor-people skin in the game. The American Left has been trying to sell a rainbow by promising Euro-style social programs for the cost of a few drops of rich-people blood. It sure is pretty, but unfortunately it's all just water vapor. At least now the Repubs are finally being explicit and clear about their desire to lower taxes for business and rich people by making the (mostly upper-) middle class pay their fair share, and providing a big, beautiful wall in return.

I don't know if I qualify as a Bernie-bro but I'll bite. It is bordering on intellectual dishonesty to look only at income tax and claim that poor and middle class people pay nothing. For the federal government alone we also have the FICA taxes, excise taxes, and corporate taxes (which Republicans are the first to admit are "actually paid for by the workers in the form of lower wages"). Also the estate tax, but that's only paid by the ultra-rich. At the state and local level you also have sales tax, probably state income tax, and property taxes (paid either directly if you're a property owner or indirectly in the form of higher rent if you're a renter). The poor and middle class do pay taxes, all the time, built into every purchase they make (in several ways). The question of "is it enough" is a valid one, but you can't even begin to approach it by looking only at income tax.

It is also true that we live in an era of drastically increasing wealth inequality. The ultra-rich are really truly ultra-rich, compared with any other time in history. It is not unreasonable to ask the ultra-rich to pay a large portion of the income tax to enable the society that allowed them their meteoric rise to ultra-weath to continue to exist.

I am also a six-figure earner. I'll be the first to admit that you and I should probably pay more in taxes. But "middle class" is a term that is so vague it is meaningless. Everyone thinks of themselves as middle-class, and there is no authority to tell them they are wrong. Middle-class people like us should pay more, sure. Middle-class people like my dad, who has worked hard his whole life and has nothing to show for it except having successfully raised his kids, absolutely not.

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.

And now the "conservatives" want to take away that incentive / benefit from the worker, replace it with nothing, and use the extra tax revenue from the "middle class" to pay for huge tax cuts to the ultra-rich? That's not "conservative", that's plain and simple class warfare. Republicans have to give a good ROI to their ultra-rich campaign donors or they'll stop donating. And no amount of deflecting and hypothesizing about how "Democrats may raise taxes in the future" or "Bernie may steal out of my ROTH" or "but what about potential future social programs and lollipops" can distract from the fact that the Republicans are right now trying to enact legislation that is bad for the worker, bad for society, and only benefits the ultra-rich who don't need any further help.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: hgjjgkj on October 22, 2017, 09:48:41 AM
- The middle class need to pay their fair share. If you compare North American taxes with European taxes, the uber rich and corporations in both pay a lot in taxes. The difference is that the middle class in North America pay peanuts.

I'd love to hear a Bernie-bro admit to this, because it's true. I'm a six-figure earner in the US, beating the snot out of the average US household income and straight-up curb stomping the world average. My effective federal tax rate will be <1% this year, mostly because of 401k deductions and for the asinine reason that my employer provides a health insurance plan and I don't have to purchase one myself, so now it's magically completely tax deductible while keeping the standard deduction. And kids. My ability to procreate definitely warrants that $2k tax haircut because ... something, something, something. ~50% of the US population doesn't pay federal income tax at all. We could jack up the rates to 100% for incomes over $1 million and it wouldn't come close to raising enough revenue to pay for some Bernie-style social programs. The reality is, and lefty Demos need to admit and come clean, that if we want universal health insurance, free public universities, free puppy daycare and lollipops, then taxes need to go up on the middle class, and a lot. A little VAT action would be needed, too, just to make sure we get some more poor-people skin in the game. The American Left has been trying to sell a rainbow by promising Euro-style social programs for the cost of a few drops of rich-people blood. It sure is pretty, but unfortunately it's all just water vapor. At least now the Repubs are finally being explicit and clear about their desire to lower taxes for business and rich people by making the (mostly upper-) middle class pay their fair share, and providing a big, beautiful wall in return.

Takes an amazing person to come into a thread on steep cuts to 401ks and come out with the take, "actually i think we should take even more from the middle class and below." Jesus Fucking Christ.

Yes you are correct that on a dollars basis rich people contribute a greater share of income than the bottom half of society. To get specific the top 50% of earners (Those above $36k) are contributing 97% of income tax dollars to the government (Top 1% above $428k drives 37%).  The 1% cohort is 11 times richer than the bottom cohort based on average salary of the brackets (so really the number is going to be much higher here), and pays 13 times more tax dollars in total. That seems pretty reasonable to me.

When you add the fact that the poverty line in the USA is $12K for singles and 22k for families, you see that the 69M Americans paying less than 15% taxes (Income less than 42K) you can see that while some minimal tax increase may be possible. Materially raising taxes on this cohort of Americans is not realistic. They are already pay check to paycheck, and on an income basis are not able to have a high quality of life. In addition, median income and real wage increase has been on the decline in the USA for nearly 20 years.

If we start with the assumption that we should have a system designed to maximize quality of life. A dollar of tax on these low income classes causes much more material harm to their ability to have a decent quality of life than does raising taxes on 400k households.  I think if you really want to enable the middle class to pay more into the income tax pool, it would be wiser to craft policies to enable these people to actually make more money.  Top 1% reaped about 2/3rds of the gains in the economy from 02-07, post recession its closer to 80%. You reap the gains you pay the taxes.

What you have in this country is a massive decoupling from labor productivity and wage increases in the middle class. The lower class has been completely left behind. As a result of this there is incredible wealth being captured by the ultra rich in this country. If we want to continue this trend it makes a lot of sense to start taxing the wealthy much more. We hopefully do not have to go back to the 50% tax rate in the top bracket that Reagan had, but there is opportunity to tax more, and a need too given the dynamic of the American Economy.

@maizeman I do not think there is much debate about who is considered wealthy, the tax rates and associated brackets are right there for anyone to read

BTW if you are married with a MAGI above 110k you don't qualify for the $1K child income tax credit. So not sure how you are doing it if your income alone is in the low 6s. Not sure how you are getting to know taxes even with an 18k 401k, 3.5HSA contribution. You should be phased out of any Traditional IRA contribution breaks as well. You know your taxes better than me, but there must be something big I am missing here because the deductions you mentioned won't get your there.



https://taxfoundation.org/summary-latest-federal-income-tax-data-2015-update/

https://taxfoundation.org/how-many-taxpayers-fall-each-income-tax-bracket/
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: bacchi on October 22, 2017, 09:59:37 AM
~50% of the US population doesn't pay federal income tax at all. We could jack up the rates to 100% for incomes over $1 million and it wouldn't come close to raising enough revenue to pay for some Bernie-style social programs. The reality is, and lefty Demos need to admit and come clean, that if we want universal health insurance, free public universities, free puppy daycare and lollipops, then taxes need to go up on the middle class, and a lot.

We already pay 2x what every other country does for sub-par health care.

Repeat after me: We already pay for it. We already pay for it. We already pay for it. We already pay for it. We already pay for it.

Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: maizefolk on October 22, 2017, 10:16:29 AM
@hgkkgkj

I don't know why you're complaining about threefive's tax returns to me, but it certainly does seem plausible for households with incomes as high at $150,000/year to pay no federal tax. If you want details, here's a helpful post on the subject http://rootofgood.com/make-six-figure-income-pay-no-tax/

The fact that definition of who is wealthy (and who is middle class) varies a lot with the income of the person listening does matter, because it is easy for politicians to say "we should raise taxes on the wealthy but not on the middle class":


Great for winning elections (though not so great for governing).

If you don't think there is much debate about who is considered wealthy, read those great threads Travis posted from a while ago on this same forum.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: threefive on October 22, 2017, 10:43:45 AM
I don't know if I qualify as a Bernie-bro but I'll bite. It is bordering on intellectual dishonesty to look only at income tax and claim that poor and middle class people pay nothing.

Great. We agree. I never said the poor and middle class pay nothing. I said ~50% pay no federal income tax. The poor and middle class do pay for the few euro-style social safety net programs we do have in the US: SS and Medicare/Medicaid. My point was that if we want more such programs, then the poor/middle class will ultimately have to pay something more for those, and the rich (and that means a lot of people on this forum) a LOT more.

Quote
Takes an amazing person to come into a thread on steep cuts to 401ks and come out with the take, "actually i think we should take even more from the middle class and below." Jesus Fucking Christ.

I did not argue for or against either, just stating facts in what I thought was a clearly sarcastic tongue-in-cheek way. Sorry to give the impression that I've got my MAGA hat on. In fact, I'd be looking at a MUCH higher tax bill if Republicans manage to slash 401k deductions (which I doubt will actually happen). That is definitely not something I would want.

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.

Basically, we have an entire tax code where someone making $50-75k can pay 10% effective, I can pay almost nothing while making (low) six figures, someone making mid six figures pays 20% effective (maizeman, maybe), and Warren Buffet pays closer to 12%. That happens because of the ever expanding list of deductions and their weird rules. And so no one thinks I actually am wearing a red MAGA hat, Republicans are certainly going to make it worse.

Quote
BTW if you are married with a MAGI above 110k you don't qualify for the $1K child income tax credit. So not sure how you are doing it if your income alone is in the low 6s. Not sure how you are getting to know taxes even with an 18k 401k, 3.5HSA contribution. You should be phased out of any Traditional IRA contribution breaks as well. You know your taxes better than me, but there must be something big I am missing here because the deductions you mentioned won't get your there.

401a defined contribution plan + 403b + 457 + spousal IRA + student loan interest + health insurance premiums + child tax credit x 2 + MMM. I might actually qualify for a $400 saver's credit this year, which is asinine. There is a sweet spot in the tax code for a MMMer, and I'm right in the middle of it.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: theolympians on October 22, 2017, 11:06:49 AM
"I make six figures and pay almost nothing". I need your tax guy/gal. I make six figures and my deductions for taxes are insanely high. I max out my 457 in a hope it will dump me in a lower tax bracket.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: obstinate on October 22, 2017, 11:47:04 AM
I'm a six-figure earner in the US ... My effective federal tax rate will be <1% this year
Your federal income tax rate might be near zero. However, you pay a minimum of about 8% for FICA. Even then, this is a very uncommon scenario, and most people who believe it applies to them have simply confused their net taxes owed with their total tax. Normally AMT will prevent it unless you are just barely above $100k. If you have even $10k in income affected by AMT, then you will pay more than 1% of your income in federal income tax.

But there is a window in there between $100k and $120k where you can get your tax rate very low. After that, it shoots up rapidly.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: libertarian4321 on October 22, 2017, 12:07:35 PM
"I make six figures and pay almost nothing". I need your tax guy/gal. I make six figures and my deductions for taxes are insanely high. I max out my 457 in a hope it will dump me in a lower tax bracket.

Yeah, I was wondering about that too.

If he's making "6-figures" and pays "almost nothing," he's either cheating on his taxes, has an insane number of deductions (39 children perhaps?), or is really bad at math.

I do agree, howerver, that the lower classes and much of the middle class pay little or nothing in Federal Income Taxes.  But the threshold for "middle class" would be far below "6-figures."

A household income of even just $100k would put a household in the top 25% or so.  A more accurate description of "middle class" would be a household income in the $35k to $85k range, which would roughly cover the middle third of median household incomes.

Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Gin1984 on October 22, 2017, 12:21:18 PM
So people who upset about this, are you going to call/write your congressperson?  Or just complain here?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: maizefolk on October 22, 2017, 12:28:15 PM
I think it is quite plausible, and will refer people again to the  Root of Good post on ending up paying only $150 on $150,000 of income.

http://rootofgood.com/make-six-figure-income-pay-no-tax/
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Zamboni on October 22, 2017, 01:02:01 PM
Just posted here to chime that this was on the front page of my local Sunday paper this morning . . . and I am thoroughly pissed that it is even being discussed.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Fireball on October 22, 2017, 01:24:01 PM
I think it is quite plausible, and will refer people again to the  Root of Good post on ending up paying only $150 on $150,000 of income.

http://rootofgood.com/make-six-figure-income-pay-no-tax/

Definitely plausible, but it does take a fairly specific situation to get it that low. Based on threads in the past, most MMM'ers in that income range pay around 10% which is pretty decent all things considered.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Zamboni on October 22, 2017, 01:43:37 PM
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.)
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: fattest_foot on October 22, 2017, 02:33:12 PM
So people who upset about this, are you going to call/write your congressperson?  Or just complain here?

Nah, I'll let the lobbyists kill this one for me.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: wenchsenior on October 22, 2017, 03:26:21 PM
Of course I'll write/call if necessary, but it has to move beyond the wild-ass, no-source proposal stage before I bother.  We'll see what happens as an actual plan begins to take shape. 

I might suck it up and support this type of thing if were part of a balanced, fair Bowles-Simpson sort of tax overhaul.  As is, it's pretty amazing that a GOP gov't would even consider proposing this in the context of the rest of their proposals.  Even the W admin gave the poor and middle classes a small tax cut while ballooning the deficit and lining the pockets of the rich.   Now the party doesn't even seem to want to bother with their usual smokescreen of tax cuts for everyone.

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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Taran Wanderer on October 22, 2017, 11:43:08 PM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: kayvent on October 23, 2017, 01:18:03 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CheapScholar on October 23, 2017, 07:04:26 AM
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). 
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: capoevename on October 23, 2017, 07:04:40 AM
https://twitter.com/realDonaldTrump/status/922428118685581313

Quote
@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!
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: capoevename on October 23, 2017, 07:09:01 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: simonsez on October 23, 2017, 07:27:24 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: MrMoneySaver on October 23, 2017, 07:38:21 AM
To be fair (and I don't like Trump, by the way), I don't think the idea was originating from the White House.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: simonsez on October 23, 2017, 07:50:41 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: talltexan on October 23, 2017, 08:10:36 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: alexpkeaton on October 23, 2017, 08:35:14 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Luck12 on October 23, 2017, 08:57:20 AM
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. 
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Luck12 on October 23, 2017, 09:13:11 AM
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. 
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: MrMoneySaver on October 23, 2017, 10:15:38 AM
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?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: doneby35 on October 23, 2017, 10:27:23 AM
oh thank goodness... nobody touches my 401k!
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: J_Stache on October 23, 2017, 10:40:06 AM

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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: OurTown on October 23, 2017, 11:49:39 AM
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!
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: dude on October 23, 2017, 12:20:39 PM

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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: mm1970 on October 23, 2017, 12:39:17 PM
Quote
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sokoloff on October 23, 2017, 02:07:37 PM
https://twitter.com/realDonaldTrump/status/922428118685581313
Quote
@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."
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Gin1984 on October 23, 2017, 02:17:58 PM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Zamboni on October 23, 2017, 03:58:03 PM
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."
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: smallstache on October 24, 2017, 03:56:30 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Inaya on October 24, 2017, 07:54:27 AM

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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: NextTime on October 24, 2017, 08:01:08 AM
His tweet means nothing.

If they get a tax reform bill through both houses, Trump will sign it, regardless of what's in it.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: talltexan on October 24, 2017, 12:57:36 PM
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
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Scandium on October 24, 2017, 01:20:17 PM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: MrMoneySaver on October 24, 2017, 01:29:40 PM
Isn't it pretty portable already in that you can roll it into an IRA when you leave?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: NextTime on October 24, 2017, 01:30:50 PM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Just Joe on October 24, 2017, 02:36:54 PM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: DavidAnnArbor on October 24, 2017, 06:57:25 PM
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
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: DavidAnnArbor on October 24, 2017, 08:18:54 PM
Are we tired of winning yet ?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Ocinfo on October 25, 2017, 09:24:50 AM
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&amp;utm_term=.29a9e6e4f222 (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&amp;utm_term=.29a9e6e4f222)






Sent from my iPhone using Tapatalk
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: ixtap on October 25, 2017, 09:44:48 AM
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.)
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sherr on October 25, 2017, 09:50:22 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: OurTown on October 25, 2017, 10:08:24 AM
Email your congress critters:  https://www.saveoursavings.org/get-involved
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sokoloff on October 25, 2017, 10:16:13 AM
-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.)
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: OurTown on October 25, 2017, 02:18:56 PM
Ruh-roh.  http://thehill.com/business-a-lobbying/357154-trump-says-he-can-negotiate-on-401k-tax-break
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: thenextguy on October 25, 2017, 02:23:27 PM
Ruh-roh.  http://thehill.com/business-a-lobbying/357154-trump-says-he-can-negotiate-on-401k-tax-break

Nobody saw that coming!
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: OurTown on October 25, 2017, 02:33:04 PM
Nobody expects the Spanish Inquisition!
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Inaya on October 25, 2017, 02:39:12 PM
Ruh-roh.  http://thehill.com/business-a-lobbying/357154-trump-says-he-can-negotiate-on-401k-tax-break (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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sol on October 25, 2017, 03:01:31 PM
Ruh-roh.  http://thehill.com/business-a-lobbying/357154-trump-says-he-can-negotiate-on-401k-tax-break (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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: ontheheel on October 25, 2017, 03:11:06 PM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: 2Birds1Stone on October 25, 2017, 03:41:23 PM
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 ;)
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: aspiringnomad on October 25, 2017, 03:53:27 PM
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?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: slow hand slow plan on October 26, 2017, 09:54:09 AM
https://finance.yahoo.com/news/republicans-may-planning-slash-amount-133442541.html


they are trying to spin it as "good for millennials" HAHA
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Gin1984 on October 26, 2017, 10:09:47 AM
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?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: thenextguy on October 26, 2017, 10:22:00 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: tarheeldan on October 26, 2017, 10:22:19 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: thenextguy on October 26, 2017, 10:24:33 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: maizefolk on October 26, 2017, 10:40:08 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Gyosho on October 26, 2017, 10:57:15 AM
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.

Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CheapScholar on October 26, 2017, 11:55:54 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: talltexan on October 26, 2017, 11:57:00 AM
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?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sokoloff on October 26, 2017, 12:00:20 PM
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.)
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Inaya on October 26, 2017, 12:02:28 PM
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 (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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Scandium on October 26, 2017, 12:35:19 PM
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.)
Yes, just raise IRA limit to $18k, and remove 401ks altogether. Much simpler. I'm sure some system of tax reduction at withholding can be figure out.

To be fair most middle class people don't save much in 401k anyway so this is really a tax break for the relatively rich. Or at least upper middle class and up. As all tax deductions are. I'm not sure this is the best target (mortgage deduction..?) but it does mainly benefit wealthier people.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: shotgunwilly on October 26, 2017, 12:47:47 PM
Typical... people gather their pitchforks and start bashing Trump as if he is the one that came up with this proposal for a change in their precious 401k plan... then when he defends the 401k plan, they're all "Well now he's a jackass for changing his mind!" *multiple shouts in agreement* "Witch! Witch!" XD

Ridiculous.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: doneby35 on October 26, 2017, 12:51:03 PM
They would actually need to raise IRA limit to 18,000 + 5,500 = 23,500.
Removing 401k alltogether also removes employer contributions.

Also, i don't think Trump is defending anything. After saying there would be NO change to 401k, a day later he backtracked. Trump signs whatever lands on his desk by the GOP, even if 401k was to be eliminated.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: rab-bit on October 26, 2017, 12:52:40 PM
They would actually need to raise IRA limit to 18,000 + 5,500 = 23,500.
Removing 401k alltogether also removes employer contributions.

Also, i don't think Trump is defending anything. After saying there would be NO change to 401k, a day later he backtracked. Trump signs whatever lands on his desk by the GOP, even if 401k was to be eliminated.

I agree with this, Trump just wants to "win".
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Scandium on October 26, 2017, 01:10:53 PM
They would actually need to raise IRA limit to 18,000 + 5,500 = 23,500.
Removing 401k alltogether also removes employer contributions.

Also, i don't think Trump is defending anything. After saying there would be NO change to 401k, a day later he backtracked. Trump signs whatever lands on his desk by the GOP, even if 401k was to be eliminated.
Right. I make too much for the IRA deduction so I only get the $18k. I think it would be fine to just make it $18k total (since it mostly benefit wealthy), but the number could certainly be tweaked. Focus should be simpler system with more choice (benefit workers) and taking burde of employers. Win-win.

I don't think it's an unsolvable problem to send employer contributions to IRAs. Or you could just raise everyone's salary by an equal, after tax amount. No difference.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Eric on October 26, 2017, 01:11:51 PM
They would actually need to raise IRA limit to 18,000 + 5,500 = 23,500.
Removing 401k alltogether also removes employer contributions.

Also, i don't think Trump is defending anything. After saying there would be NO change to 401k, a day later he backtracked. Trump signs whatever lands on his desk by the GOP, even if 401k was to be eliminated.

I agree with this, Trump just wants to "win".

Do you think he's tired of winning so much yet?

https://www.youtube.com/watch?v=daOH-pTd_nk
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: OurTown on October 26, 2017, 01:26:24 PM
This is a terrible plan.  If you assume a married couple in the 25% nominal tax bracket that maxes out his and hers 401(k)s, that is a $9,000 tax increase per year.  That is a massive tax increase on people who are exercising financial responsibility. 

I would submit to you that most married mustachians would withdraw less than $72k/year during retirement years, meaning that they would be taxed in the 15% nominal bracket upon withdrawal.  If you Rothify these funds, they will pay 25% up front and withdraw tax-free (principal & gains) on funds that would have otherwise been taxed in the 15% bracket.  That's not winning.     
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Gin1984 on October 26, 2017, 01:26:46 PM
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.
Honestly, because when the idea of doing something was brought up on this board, every person who responded said they would not.  Not one person said they would. 
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: DarkandStormy on October 26, 2017, 01:33:19 PM
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.

Quote
"If a worker saves $5,000 a year in a 401(k) for 40 years and earns 5% return a year, the final balance will be more than $600,000. If the 401(k) is a Roth, the full balance is available for retirement spending. If the 401(k) is a traditional one, taxes are due on the balance. Let's say the person's tax rate is 20% in retirement. That makes for a difference of $120,000 in spending power, which a life annuity will translate into about $700 a month in extra spending."

Author assumes Roth 401(k) contributions will still be alive (why?) and that people will be in the 20% tax bracket in retirement (really?).  Some study apparently shows Roth contributions = more in retirement or some hocus pocus.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: I'm a red panda on October 26, 2017, 01:35:54 PM
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.
Honestly, because when the idea of doing something was brought up on this board, every person who responded said they would not.  Not one person said they would.

My senators and representative, both state and national are on my phone's speed dial.

I don't JUST complain on the internet. I call, frequently.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: DarkandStormy on October 26, 2017, 01:36:14 PM
Typical... people gather their pitchforks and start bashing Trump as if he is the one that came up with this proposal for a change in their precious 401k plan... then when he defends the 401k plan, they're all "Well now he's a jackass for changing his mind!" *multiple shouts in agreement* "Witch! Witch!" XD

Ridiculous.

You must have missed the part where he backed off defending the 401k plan.  In 48 hours.

Ridiculous.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: DarkandStormy on October 26, 2017, 01:38:39 PM
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).

Quote
President Trump said Wednesday changes to retirement savings accounts could still be included in the Republican tax plan, backing away from his previous insistence they not be touched.
 
“Maybe it is and maybe we’ll use it as negotiating,” Trump told reporters at the White House.

I'm not even bothering with writing the punch line for you.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CheapScholar on October 26, 2017, 01:41:51 PM
I called my Senator today.  More importantly, I called both offices for my member of Congress, as she is a Republican and on Ways & Means.  I also demanded to know when her next town hall meeting is, as I have several questions about the 401(k) aspect of the tax bill.  I used to work in a congressional office.  Nothing gets more attention that nuts calling in and demanding to know when the next town hall is.

Anyway, I'd encourage everyone to call their reps.  The truth here is that calling Republican reps is 1,000 times more helpful, and calling reps on Ways & Means does even more for us.  I'd encourage everyone to call Kevin Brady (Texas) and tell him what a fat piece of crap he is - or troll him on Facebook.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Zamboni on October 26, 2017, 01:53:17 PM
Thanks to a healthy dose of NC gerrymandering, my representative is a democrat . . . no need to call and pester his staff about it.

Both of my state's senators are Republicans, but they are clearly such jerky boys of huge proportion that I doubt either cares what we think. They care so little it makes me long for ole Jesse . . . which I never thought would happen.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: OurTown on October 26, 2017, 01:53:40 PM
I called my Senator today.  More importantly, I called both offices for my member of Congress, as she is a Republican and on Ways & Means.  I also demanded to know when her next town hall meeting is, as I have several questions about the 401(k) aspect of the tax bill.  I used to work in a congressional office.  Nothing gets more attention that nuts calling in and demanding to know when the next town hall is.

Anyway, I'd encourage everyone to call their reps.  The truth here is that calling Republican reps is 1,000 times more helpful, and calling reps on Ways & Means does even more for us.  I'd encourage everyone to call Kevin Brady (Texas) and tell him what a fat piece of crap he is - or troll him on Facebook.

Thank you, I also called today.  I am noticing both left- and right- wing opposition to this shit sandwich.  Hopeful sign?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: OurTown on October 26, 2017, 02:06:51 PM
The financial services industry is strongly against.  Surely they can't pass this.  Stop calling me Shirley.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: ZiziPB on October 26, 2017, 02:07:40 PM
No need to call in my case as our congressional delegation is 100% Democrats.  They are all great and do an excellent job.  Both senators (Blumenthal and Murphy) are very vocal on the issues I care about.  On the other hand, I may call and let them know that I'm very happy with what they are doing :-)
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: I'm a red panda on October 26, 2017, 02:12:29 PM
It's not a bad idea to call reps who agree with you too. If only to let them know which issues their constituents feel most strongly about.  You'd hate for the "compromise" to be on the issue you really care about.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on October 26, 2017, 02:14:00 PM
changing 401k savings really only hurts rich people.  unless it goes up then it helps us.  Its an awesome tool but its far from necessary to reach FIRE.  and if its not there it just means less games i have to play with a roth ladder when i retire.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: dandarc on October 26, 2017, 02:16:21 PM
The financial services industry is strongly against.
Well yeah - now that people are (slowly) wising up to the fees issue on the retail side and on the institutional side, small-business retirement plans are one of the few things left that they can charge enormous fees on.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: doneby35 on October 26, 2017, 02:31:09 PM
changing 401k savings really only hurts rich people.  unless it goes up then it helps us.  Its an awesome tool but its far from necessary to reach FIRE.  and if its not there it just means less games i have to play with a roth ladder when i retire.

Explain how please? if i'm not able to contribute 18,000 pre-tax into my 401k every year and instead only able to contribute 2,400 pre-tax, how does that not hurt?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on October 26, 2017, 02:32:40 PM
changing 401k savings really only hurts rich people.  unless it goes up then it helps us.  Its an awesome tool but its far from necessary to reach FIRE.  and if its not there it just means less games i have to play with a roth ladder when i retire.

Explain how please? if i'm not able to contribute 18,000 pre-tax into my 401k every year and instead only able to contribute 2,400 pre-tax, how does that not hurt?

if you're able to contribute 18k to your 401k you're a rich person in this country.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: OurTown on October 26, 2017, 02:36:30 PM
It would hurt me and I'm not rich.  Yet.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: doneby35 on October 26, 2017, 02:38:40 PM
Not really, my annual expenses are 15k, and therefore I'm able to contribute 18k to 401k. I thought most mustachians can do that with salaries around 60k. That's middle class.
The ones who already have a good amount contributed to their 401k over the years and are close to FIRE would be less affected than the rest who are still 7-10years away.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: OurTown on October 26, 2017, 02:39:55 PM
https://dqydj.com/net-worth-percentile-calculator-united-states/

FWIW, I am at percentile 81.  The "top 1%" starts at $10M.  The "top 0.1%" starts at $43M.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: OurTown on October 26, 2017, 02:41:32 PM
http://graphics.wsj.com/what-percent/

Individual income I'm at 95th percentile.  Okay, maybe I am rich.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Luck12 on October 26, 2017, 03:01:36 PM
Just made a few calls on this.  People, take action and call! 
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on October 26, 2017, 03:05:59 PM
Not really, my annual expenses are 15k, and therefore I'm able to contribute 18k to 401k. I thought most mustachians can do that with salaries around 60k. That's middle class.
The ones who already have a good amount contributed to their 401k over the years and are close to FIRE would be less affected than the rest who are still 7-10years away.

this is true but i'd say mustachians are the outlier here not the norm for society.  and the vast majority of people who max out their 401k's are the rich.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: DavidAnnArbor on October 26, 2017, 03:41:53 PM
Not really, my annual expenses are 15k, and therefore I'm able to contribute 18k to 401k. I thought most mustachians can do that with salaries around 60k. That's middle class.
The ones who already have a good amount contributed to their 401k over the years and are close to FIRE would be less affected than the rest who are still 7-10years away.

this is true but i'd say mustachians are the outlier here not the norm for society.  and the vast majority of people who max out their 401k's are the rich.

But even people who don't contribute to the maximum are hurt by this. Say someone that was intending to put $6k into the traditional 401k.

More importantly, why should a group of middle to upper middle income people have to forego this tax deduction so that people like Donald Trump can avoid the estate tax ?
Makes no sense whatsoever.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sokoloff on October 26, 2017, 03:43:32 PM
changing 401k savings really only hurts rich people.  unless it goes up then it helps us.  Its an awesome tool but its far from necessary to reach FIRE.  and if its not there it just means less games i have to play with a roth ladder when i retire.
Explain how please? if i'm not able to contribute 18,000 pre-tax into my 401k every year and instead only able to contribute 2,400 pre-tax, how does that not hurt?
if you're able to contribute 18k to your 401k you're a rich person in this country.
Disagree. I've been maxing my 401K contributions since my mid 20s. No way was I rich at 27 making about $65K/yr. (20 years later, I am, but I was pumping the 401K full long before any reasonable definition of "rich" applied.)
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: MrMoneySaver on October 26, 2017, 04:04:09 PM
This potentially affects anyone who intends to put more than $2,400 a year into a 401k, so it's an issue that extends far beyond the rich.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: doneby35 on October 26, 2017, 04:19:08 PM
This potentially affects anyone who intends to put more than $2,400 a year into a 401k, so it's an issue that extends far beyond the rich.

Exactly. Everyone needs to call their state reps and make a big deal about this now before it's too late.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sol on October 26, 2017, 05:18:40 PM
The hard part about evaluating these proposals in isolation is that you never get the whole picture.  Are they reducing the 401k limit but increasing the Roth limit or the Savers credit?  Are they phasing out deductibility with income, or ending the 401k program entirely?  Are they proposing some alternative retirement savings vehicle with different rules?

I'm reluctant to throw a fit until I see an actual bill, but unfortunately the new GOP legislating strategy seems to be to hide details until the last possible minute, then pass something quick before anyone has time to understand what's really in it.  They've tried the same strategy with every piece of legislation thus far, avoiding bipartisan compromise or even open floor debate, trying to push through secret plans without discussion or review.

This is no way to run a country.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sokoloff on October 26, 2017, 05:29:46 PM
This is no way to run a country.
Yes, it's appalling to use such tactics. (https://www.republicanleader.senate.gov/newsroom/research/flashback-democrats-secret-closed-door-obamacare-process)
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Luck12 on October 26, 2017, 05:57:41 PM
This is no way to run a country.
Yes, it's appalling to use such tactics. (https://www.republicanleader.senate.gov/newsroom/research/flashback-democrats-secret-closed-door-obamacare-process)

Really?  You're linking to a page with "Mitch Mcconell, Senate Majority Leader" as the header and republicanleader.senate.gov in the name of the link?   Not biased at all!  LOL. 

https://www.snopes.com/aca-versus-ahca/

http://www.politifact.com/truth-o-meter/article/2017/jun/20/7-questions-about-senate-health-care-bill-and-tran/

https://www.c-span.org/video/?292260-1/white-house-health-care-summit-part-1

Let's put this bullshit myth to rest that Obamacare was as secretive a process as RepubliCONcare.  For fuck's sake.   Fuck is wrong with some of you people?    Little wonder I have such little faith in humanity!
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: aspiringnomad on October 26, 2017, 05:58:04 PM
This is no way to run a country.
Yes, it's appalling to use such tactics. (https://www.republicanleader.senate.gov/newsroom/research/flashback-democrats-secret-closed-door-obamacare-process)

^ Thanks for the fact-based, nonpartisan source. Certainly no room for political spin on a politician's website...

Anyway, if they gut the 401(k) in exchange for a tiny percentage of the population being able to pass their estates onto their kids tax free (just joking about that whole equality of opportunity thing!) then I expect there will be some political consequences. Republicans might lose even more of the middle to upper middle class suburban vote that used to be an important chunk of their base, but I suppose the parties have already been realigning along educational lines anyway.

Personally, I don't care much either way. I can easily adjust to whatever shakes out and nothing about tax reform is necessarily permanent anyway - it can be reversed in the event of another wave election or fiscal crisis. What's harder to reverse is nuclear war or the continued debasement of our country and its institutions. If there are some Rs continuing to hold their nose for the sake of tax reform, then hopefully its passage will speed the groundswell of conscientious Republican objectors to 45.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Gin1984 on October 26, 2017, 05:58:18 PM
The hard part about evaluating these proposals in isolation is that you never get the whole picture.  Are they reducing the 401k limit but increasing the Roth limit or the Savers credit?  Are they phasing out deductibility with income, or ending the 401k program entirely?  Are they proposing some alternative retirement savings vehicle with different rules?

I'm reluctant to throw a fit until I see an actual bill, but unfortunately the new GOP legislating strategy seems to be to hide details until the last possible minute, then pass something quick before anyone has time to understand what's really in it.  They've tried the same strategy with every piece of legislation thus far, avoiding bipartisan compromise or even open floor debate, trying to push through secret plans without discussion or review.

This is no way to run a country.
They said they want to get rid of the savers credit because it is underutilized.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on October 26, 2017, 07:57:36 PM
changing 401k savings really only hurts rich people.  unless it goes up then it helps us.  Its an awesome tool but its far from necessary to reach FIRE.  and if its not there it just means less games i have to play with a roth ladder when i retire.
Explain how please? if i'm not able to contribute 18,000 pre-tax into my 401k every year and instead only able to contribute 2,400 pre-tax, how does that not hurt?
if you're able to contribute 18k to your 401k you're a rich person in this country.
Disagree. I've been maxing my 401K contributions since my mid 20s. No way was I rich at 27 making about $65K/yr. (20 years later, I am, but I was pumping the 401K full long before any reasonable definition of "rich" applied.)

20 years ago you were making 67k and you don't think you were rich. You have a very warped view of income levels. That's 103k in today dollars at 27. I'd guess less than 2% of 27 year olds make that much money

This is laughable
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: teen persuasion on October 26, 2017, 09:11:33 PM
changing 401k savings really only hurts rich people.  unless it goes up then it helps us.  Its an awesome tool but its far from necessary to reach FIRE.  and if its not there it just means less games i have to play with a roth ladder when i retire.

Changing 401k limits hurts low income people who use EITC.  If this change were enacted, it would cost us close to $5k in lost credits (federal and state, because state is a percentage of federal credit), and maybe $2600+ in additional tax.  That would definitely slow down our path to FIRE, since I use those refunds to fund our Roth IRAs.

Some posters were of the opinion that simply eliminating the 401k altogether and increasing the IRA contribution limits would be good enough (may have been on another thread on this same topic).  This is also problematic for EITC eligible families.  Contributions thru payroll 401k lower AGI and line 7 wages (EITC tests both), but IRA contributions only lower AGI.  Thus IRAs are not equivalent and useless for EITC eligibility, unless some type of payroll deduction can be added.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Taran Wanderer on October 26, 2017, 09:14:39 PM
Changing 401k limits hurts low income people who use EITC.  If this change were enacted, it would cost us close to $5k in lost credits (federal and state, because state is a percentage of federal credit), and maybe $2600+ in additional tax.  That would definitely slow down our path to FIRE, since I use those refunds to fund our Roth IRAs.

Some posters were of the opinion that simply eliminating the 401k altogether and increasing the IRA contribution limits would be good enough (may have been on another thread on this same topic).  This is also problematic for EITC eligible families.  Contributions thru payroll 401k lower AGI and line 7 wages (EITC tests both), but IRA contributions only lower AGI.  Thus IRAs are not equivalent and useless for EITC eligibility, unless some type of payroll deduction can be added.

I don't want to see the 401k limit get changed downward, and nothing against you, but this comment is a great example of why the tax code is too complicated and needs to be simplified.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: ZiziPB on October 27, 2017, 04:23:19 AM
Changing 401k limits hurts low income people who use EITC.  If this change were enacted, it would cost us close to $5k in lost credits (federal and state, because state is a percentage of federal credit), and maybe $2600+ in additional tax.  That would definitely slow down our path to FIRE, since I use those refunds to fund our Roth IRAs.

Some posters were of the opinion that simply eliminating the 401k altogether and increasing the IRA contribution limits would be good enough (may have been on another thread on this same topic).  This is also problematic for EITC eligible families.  Contributions thru payroll 401k lower AGI and line 7 wages (EITC tests both), but IRA contributions only lower AGI.  Thus IRAs are not equivalent and useless for EITC eligibility, unless some type of payroll deduction can be added.

I don't want to see the 401k limit get changed downward, and nothing against you, but this comment is a great example of why the tax code is too complicated and needs to be simplified.
I wholeheartedly agreed about the need for simplification, but do you honestly think that the current proposal actually accomplishes that?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Indexer on October 27, 2017, 05:22:48 AM
Changing 401k limits hurts low income people who use EITC.  If this change were enacted, it would cost us close to $5k in lost credits (federal and state, because state is a percentage of federal credit), and maybe $2600+ in additional tax.  That would definitely slow down our path to FIRE, since I use those refunds to fund our Roth IRAs.

Some posters were of the opinion that simply eliminating the 401k altogether and increasing the IRA contribution limits would be good enough (may have been on another thread on this same topic).  This is also problematic for EITC eligible families.  Contributions thru payroll 401k lower AGI and line 7 wages (EITC tests both), but IRA contributions only lower AGI.  Thus IRAs are not equivalent and useless for EITC eligibility, unless some type of payroll deduction can be added.

I don't want to see the 401k limit get changed downward, and nothing against you, but this comment is a great example of why the tax code is too complicated and needs to be simplified.
I wholeheartedly agreed about the need for simplification, but do you honestly think that the current proposal actually accomplishes that?

NOPE.

The plan they all ran on, Paul Ryan's "Better Way" tax plan, would have been a giveaway to the rich but it also simplified the tax code. While I didn't agree with everything, specifically the top bracket %, most of it was a step in the right direction. That plan didn't call for weakening retirement plans. It actually called for expanding them with the creation of a new simplified retirement plan called a USA(Universal Savings account). It would act like a Roth without the penalties for early withdrawals.

The only way limiting 401ks to $2400 makes any sense is if they are trying to replace them with USA plans, but if that is the idea why don't they just say that? "We are removing all of your tax advantaged plans" sounds a lot worse than "we created a better simplified tax advantaged plan."

The Better Way tax plan also simplified capital gains taxation. Instead of LTCG having their own separate tax brackets the tax plan calls for LTCG being taxed at half of your normal rate. This ends up being pretty close to the current system

Source: https://abetterway.speaker.gov/_assets/pdf/ABetterWay-Tax-PolicyPaper.pdf
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on October 27, 2017, 05:31:42 AM
Changing 401k limits hurts low income people who use EITC.  If this change were enacted, it would cost us close to $5k in lost credits (federal and state, because state is a percentage of federal credit), and maybe $2600+ in additional tax.  That would definitely slow down our path to FIRE, since I use those refunds to fund our Roth IRAs.

Some posters were of the opinion that simply eliminating the 401k altogether and increasing the IRA contribution limits would be good enough (may have been on another thread on this same topic).  This is also problematic for EITC eligible families.  Contributions thru payroll 401k lower AGI and line 7 wages (EITC tests both), but IRA contributions only lower AGI.  Thus IRAs are not equivalent and useless for EITC eligibility, unless some type of payroll deduction can be added.

I don't want to see the 401k limit get changed downward, and nothing against you, but this comment is a great example of why the tax code is too complicated and needs to be simplified.
I wholeheartedly agreed about the need for simplification, but do you honestly think that the current proposal actually accomplishes that?

NOPE.

The plan they all ran on, Paul Ryan's "Better Way" tax plan, would have been a giveaway to the rich but it also simplified the tax code. While I didn't agree with everything, specifically the top bracket %, most of it was a step in the right direction. That plan didn't call for weakening retirement plans. It actually called for expanding them with the creation of a new simplified retirement plan called a USA(Universal Savings account). It would act like a Roth without the penalties for early withdrawals.

The only way limiting 401ks to $2400 makes any sense is if they are trying to replace them with USA plans, but if that is the idea why don't they just say that? "We are removing all of your tax advantaged plans" sounds a lot worse than "we created a better simplified tax advantaged plan."

The Better Way tax plan also simplified capital gains taxation. Instead of LTCG having their own separate tax brackets the tax plan calls for LTCG being taxed at half of your normal rate. This ends up being pretty close to the current system

Source: https://abetterway.speaker.gov/_assets/pdf/ABetterWay-Tax-PolicyPaper.pdf

I'd prefer elimination of income tax all together kill off a majority of the IRS as well as the large tax companies - who have huge lobbies so thats why this wont happen.  but movement to a sales tax based system eliminates many many loop holes people can jump thru to avoid taxes. 
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Mr. Green on October 27, 2017, 05:42:54 AM
I'd prefer elimination of income tax all together kill off a majority of the IRS as well as the large tax companies - who have huge lobbies so thats why this wont happen.  but movement to a sales tax based system eliminates many many loop holes people can jump thru to avoid taxes.
VAT all the way! Tax consumption and reward saving/investing. The gov't still wins in the end because money saved/invested eventually gets taxed via estate taxes or future spending.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Indexer on October 27, 2017, 05:59:58 AM
I'm posting this separate from my last post because it is a completely different set of ideas.

While I benefit greatly from the 401k system, both personally(I max it out) and professionally(I work in investment management), I can see the benefit of switching the employee contributions to a Roth style system. The employer side should stay pre-tax, that is the incentive for the employer to do it. A Roth contribution doesn't benefit your employer, it only benefits you.

If we were starting from scratch, as opposed to editing an old entrenched tax system, we wouldn't include many of the things that are already in place. The USA(Universal Savings accounts) that have been proposed in the past make a lot of sense. Something that works like a Roth without the penalties and complex rules is much more simplified than what we have now. Why do we have a dozen different retirement plans, each with their own rules, and sometimes very very complicated conflicting rules?

Example: A Roth IRA has a 5 year limit before you can withdrawal earnings, and Roth 401ks also have a 5 year limit before you can withdrawal earnings. If you put $1 in a Roth IRA that starts your 5 year clock. If you put $18k/yr for 40 years into a Roth 401k, and then roll it into a brand new Roth IRA(never had one before) your 5 year clock has to restart. How does that make sense? It doesn't, but that is because adding the Roth IRA and the Roth 401k were two separate edits to the tax code and no one considered how they interact.

Many of us benefit from the 401k now, but if we were creating a new tax system from scratch would we include it? History lesson, 401ks were never expected to be main stream, and that is why their name is so odd. SEPs, SIMPLEs, Roth IRA, IRAs, Pensions, all have simple easy to remember names. 401ks are named after the section of the tax code, describing rules for profit sharing plans, that was used to create the plans. Section 401 - k.

Pre-tax contributions help you more and more the more income you have. They do benefit the upper middle class and the rich more than the lower middle class and the poor. If you are in the 10 or 15% bracket then a Roth is probably better. Once you get into the 33% bracket that is a harder argument. Pre-tax contributions also let you move your AGI which impacts a whole host of other things, effectively allowing people to manipulate the tax system to their own benefit. Example: I highly doubt that when they put the income limits for student loan deductibility in the 60k range they thought, "We don't want single people making 80k a year to benefit from this, UNLESS they are also contributing 18k/yr to their 401k and $3400/yr to their HSA. Then they most certainly can deduct student loan interest."

My point: while I benefit greatly from the current system, if I was creating a system from scratch this wouldn't be it. I don't know if the current proposals in Congress are a step in the right direction, because they haven't revealed them. These are just my thoughts on a better system.


Extra thoughts:  If you are maxing out your retirement account and you have a long time horizon, then Roth contributions are normally better "regardless" of income. The reason is that 18k in a Roth is effectively more money saved than 18k in a Trad. Comparing 10k in Roth to 13.3k in Trad turns into a fair mathematical comparison, and if your tax rate stays the same throughout life you will get similar answers, but if your tax rate falls at retirement the trad will look better and vice versa. However, if the accounts are maxed out the math gets complicated. 18k in a Roth VS 18k in a Trad+$5940 in taxable. Over the long term that taxable account drags down the overall after-tax performance. In 5 years it probably won't make a big difference. Over 40 years it's a different story and it makes the Roth look better even in extremes, like 33% bracket now and 15% in retirement. (This is just the math comparing Trad VS Roth. It doesn't take into account how pre-tax contributions affect AGI... which is another example of how complex our tax code is.)

The reason I bring that up, switching to USAs(a Roth w/o early w/d penalties) could help most Mustachians. Yes, we would lose our short term tax brakes, but we could benefit in the long term, and if the USAs don't have early withdrawal penalties then that removes the tax problems when retiring before 59 1/2. No more need for complex Roth conversion ladders.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sokoloff on October 27, 2017, 06:05:28 AM
I've been maxing my 401K contributions since my mid 20s. No way was I rich at 27 making about $65K/yr. (20 years later, I am, but I was pumping the 401K full long before any reasonable definition of "rich" applied.)
20 years ago you were making 67k and you don't think you were rich. You have a very warped view of income levels. That's 103k in today dollars at 27. I'd guess less than 2% of 27 year olds make that much money
$65K 20 years ago is a hair under $100K today (https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=65000&year1=199709&year2=201709). That's 87.6th percentile income today (https://dqydj.com/income-percentile-calculator/).

You're free to think that a household with very low net assets and making that income is "rich", but doing so basically requires at least 1/8th of the US to be "rich". I'm free to look at that same set of facts and conclude otherwise. The fact that that income is earned and assets held by a 27 year old or a 47 year old is irrelevant IMO to the "is this situation rich?" question.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sokoloff on October 27, 2017, 06:12:46 AM
While I benefit greatly from the 401k system, both personally(I max it out) and professionally(I work in investment management), I can see the benefit of switching the employee contributions to a Roth style system. The employer side should stay pre-tax, that is the incentive for the employer to do it. A Roth contribution doesn't benefit your employer, it only benefits you.
@Indexer, rest of your post was very thoughtful and understandable, but this part I didn't understand.

How does a traditional 401K employer contribution benefit the employer in a way that a Roth-style employer contribution would not? Both would serve as a cost to the employer, reducing the employer's profit/tax. Both would serve as a retention/compensation incentive to the employee.

If you structured the employer contribution the same way you structure "gross pay" today (meaning you take a stab at what the taxed amount/withholding will be, but the employee remains responsible for settling up with the feds at the end of the year), I don't see how the traditional 401(k) is a benefit to the employer in a way that the Roth would not be.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Scandium on October 27, 2017, 06:41:52 AM
changing 401k savings really only hurts rich people.  unless it goes up then it helps us.  Its an awesome tool but its far from necessary to reach FIRE.  and if its not there it just means less games i have to play with a roth ladder when i retire.
Explain how please? if i'm not able to contribute 18,000 pre-tax into my 401k every year and instead only able to contribute 2,400 pre-tax, how does that not hurt?
if you're able to contribute 18k to your 401k you're a rich person in this country.
Disagree. I've been maxing my 401K contributions since my mid 20s. No way was I rich at 27 making about $65K/yr. (20 years later, I am, but I was pumping the 401K full long before any reasonable definition of "rich" applied.)
The median household income is around $55k. You where making 20% more than that by yourself, and that was 20 years ago?! You were certainly wealthier than that majority of the population. I'd say that qualify as "rich".

Most middle class people and below can't afford to contribute much if anything to a 401k, and if they did most would only get a deduction in the 10% bracket (as Romney said 47% don't pay any federal taxes).

Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sokoloff on October 27, 2017, 06:47:56 AM
The median household income is around $55k. You where making 20% more than that by yourself, and that was 20 years ago?! You were certainly wealthier than that majority of the population. I'd say that qualify as "rich".
My records from that era indicate that my net worth was under $90K in 1997. That's under $140K in today's money. Is someone with $140K in assets today "rich"?

Do not confuse income with wealth. Income is, at best, the first derivative of wealth.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on October 27, 2017, 07:26:07 AM
The median household income is around $55k. You where making 20% more than that by yourself, and that was 20 years ago?! You were certainly wealthier than that majority of the population. I'd say that qualify as "rich".
My records from that era indicate that my net worth was under $90K in 1997. That's under $140K in today's money. Is someone with $140K in assets today "rich"?

Do not confuse income with wealth. Income is, at best, the first derivative of wealth.

argue the semantics of it all you want you were in the upper tier of the population in terms of both wealth and income particularly for a 27 year old.  You in no way shape or form needed any tax benefit the 401k provided.  there have been some who posted above who are getting to the EITC because of it and it strongly benefits them but you on the other hand.

140k for a 27 year old ranks in the 96th percentile.  you were rich regardless of if you want to admit it or not. 

and your income as indicated above puts you in the upper tier of earns not even considering age.

The point of my statement is by in large the 401k benefits the rich/wealthy/high income earners of which you entirely fit into each of these categories so further proving the point regardless of if you want to admit you were that well off or not.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: I'm a red panda on October 27, 2017, 07:36:40 AM
I'd prefer elimination of income tax all together kill off a majority of the IRS as well as the large tax companies - who have huge lobbies so thats why this wont happen.  but movement to a sales tax based system eliminates many many loop holes people can jump thru to avoid taxes.
VAT all the way! Tax consumption and reward saving/investing. The gov't still wins in the end because money saved/invested eventually gets taxed via estate taxes or future spending.

Except they are getting rid of estate taxes.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: dude on October 27, 2017, 07:36:51 AM
I'm posting this separate from my last post because it is a completely different set of ideas.

While I benefit greatly from the 401k system, both personally(I max it out) and professionally(I work in investment management), I can see the benefit of switching the employee contributions to a Roth style system. The employer side should stay pre-tax, that is the incentive for the employer to do it. A Roth contribution doesn't benefit your employer, it only benefits you.

If we were starting from scratch, as opposed to editing an old entrenched tax system, we wouldn't include many of the things that are already in place. The USA(Universal Savings accounts) that have been proposed in the past make a lot of sense. Something that works like a Roth without the penalties and complex rules is much more simplified than what we have now. Why do we have a dozen different retirement plans, each with their own rules, and sometimes very very complicated conflicting rules?

Example: A Roth IRA has a 5 year limit before you can withdrawal earnings, and Roth 401ks also have a 5 year limit before you can withdrawal earnings. If you put $1 in a Roth IRA that starts your 5 year clock. If you put $18k/yr for 40 years into a Roth 401k, and then roll it into a brand new Roth IRA(never had one before) your 5 year clock has to restart. How does that make sense? It doesn't, but that is because adding the Roth IRA and the Roth 401k were two separate edits to the tax code and no one considered how they interact.

Many of us benefit from the 401k now, but if we were creating a new tax system from scratch would we include it? History lesson, 401ks were never expected to be main stream, and that is why their name is so odd. SEPs, SIMPLEs, Roth IRA, IRAs, Pensions, all have simple easy to remember names. 401ks are named after the section of the tax code, describing rules for profit sharing plans, that was used to create the plans. Section 401 - k.

Pre-tax contributions help you more and more the more income you have. They do benefit the upper middle class and the rich more than the lower middle class and the poor. If you are in the 10 or 15% bracket then a Roth is probably better. Once you get into the 33% bracket that is a harder argument. Pre-tax contributions also let you move your AGI which impacts a whole host of other things, effectively allowing people to manipulate the tax system to their own benefit. Example: I highly doubt that when they put the income limits for student loan deductibility in the 60k range they thought, "We don't want single people making 80k a year to benefit from this, UNLESS they are also contributing 18k/yr to their 401k and $3400/yr to their HSA. Then they most certainly can deduct student loan interest."

My point: while I benefit greatly from the current system, if I was creating a system from scratch this wouldn't be it. I don't know if the current proposals in Congress are a step in the right direction, because they haven't revealed them. These are just my thoughts on a better system.


Extra thoughts:  If you are maxing out your retirement account and you have a long time horizon, then Roth contributions are normally better "regardless" of income. The reason is that 18k in a Roth is effectively more money saved than 18k in a Trad. Comparing 10k in Roth to 13.3k in Trad turns into a fair mathematical comparison, and if your tax rate stays the same throughout life you will get similar answers, but if your tax rate falls at retirement the trad will look better and vice versa. However, if the accounts are maxed out the math gets complicated. 18k in a Roth VS 18k in a Trad+$5940 in taxable. Over the long term that taxable account drags down the overall after-tax performance. In 5 years it probably won't make a big difference. Over 40 years it's a different story and it makes the Roth look better even in extremes, like 33% bracket now and 15% in retirement. (This is just the math comparing Trad VS Roth. It doesn't take into account how pre-tax contributions affect AGI... which is another example of how complex our tax code is.)

The reason I bring that up, switching to USAs(a Roth w/o early w/d penalties) could help most Mustachians. Yes, we would lose our short term tax brakes, but we could benefit in the long term, and if the USAs don't have early withdrawal penalties then that removes the tax problems when retiring before 59 1/2. No more need for complex Roth conversion ladders.

The problem with going all Roth is there's a carrot but no stick.  People being people, they need a stick.  Early withdrawal penalties are that stick. Retirement savings is supposed to be for retirement, not a slush fund for buying new toys when the urge arises.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Scandium on October 27, 2017, 07:50:12 AM
The median household income is around $55k. You where making 20% more than that by yourself, and that was 20 years ago?! You were certainly wealthier than that majority of the population. I'd say that qualify as "rich".
My records from that era indicate that my net worth was under $90K in 1997. That's under $140K in today's money. Is someone with $140K in assets today "rich"?

Do not confuse income with wealth. Income is, at best, the first derivative of wealth.

Well lets see.
https://www.fool.com/investing/general/2015/05/17/americans-average-net-worth-by-age-how-do-you-comp.aspx

At age <35 the average net worth is ~$7,000. Yet in your 20s you had a net worth equal to the average person at 55-64 years old (including home equity). And as boarder pointed out; in the 96th percentile of the population. Uhm, so yes I'd say the IMO you were/are rich. Are you going to argue that an income in the top 12% and top 4% in assets is not "rich"?

I don't think there's anything wrong with being rich. In fact personally I'm in pretty much the same situation as you. But I do think it's a problem when people in our situation refuse to acknowledge that were are among the fortunate few, and insisting we are just normal people struggling along, and worthy of government help in the form of tax cuts/benefits. It is possible to acknowledge hard work, but also fortunate circumstances.
(And even worse is the common extension of this where the same people fighting for their 401k and mortgage deduction saying poor people are lazy moochers and unworthy of help. You didn't say this, but it's pretty common.)

Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CheapScholar on October 27, 2017, 07:51:12 AM
There are other problems with going Roth.  My top dollars earned right now are 25% bracket.  Even if the brackets are adjusted and my top dollars are 15%, I am incentivized to invest all I can in my pre-tax 401k or 403b because I know that even if the market underperforms, I'm winning right now.  Sure, I'll pay taxes someday when I withdraw but that's years away and ideally I'll be in lower bracket.

The other problem is that you're trusting the government to keep their word about NOT taxing Roth accounts and NOT pushing back the age you can withdraw on without penalty.  I'm 37.  I could easily see the government putting some taxes on Roth accounts before I'm 59.5.  Maybe not flat out income tax, but a percent or two to pay for whatever the noble cause will be in 20 years. 
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Scandium on October 27, 2017, 08:07:45 AM
The other problem is that you're trusting the government to keep their word about NOT taxing Roth accounts and NOT pushing back the age you can withdraw on without penalty. 

This is the same with a tax-deferred account too, not in any way unique to Roth. So I don't see that as an argument for one way or another. In that case the safest is probably to only invest after tax. In the Bahamas. In gold and bitcoin.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: DarkandStormy on October 27, 2017, 08:11:05 AM
Who has even said/reported that Roth 401k contributions would still exist?  $2,400 could be the limit to BOTH pre-tax and Roth contributions, no?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CheapScholar on October 27, 2017, 08:14:06 AM
The other problem is that you're trusting the government to keep their word about NOT taxing Roth accounts and NOT pushing back the age you can withdraw on without penalty. 

This is the same with a tax-deferred account too, not in any way unique to Roth. So I don't see that as an argument for one way or another. In that case the safest is probably to only invest after tax. In the Bahamas. In gold and bitcoin.

True they could push back withdrawal age for traditional IRA or 401k, I concede that.  But I want my actual tax break now, not in the future.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on October 27, 2017, 08:27:18 AM
Who has even said/reported that Roth 401k contributions would still exist?  $2,400 could be the limit to BOTH pre-tax and Roth contributions, no?

no this is incorrect. the original report on this said roth would still exist up to its current limit.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on October 27, 2017, 08:29:52 AM
The other problem is that you're trusting the government to keep their word about NOT taxing Roth accounts and NOT pushing back the age you can withdraw on without penalty. 

This is the same with a tax-deferred account too, not in any way unique to Roth. So I don't see that as an argument for one way or another. In that case the safest is probably to only invest after tax. In the Bahamas. In gold and bitcoin.

True they could push back withdrawal age for traditional IRA or 401k, I concede that.  But I want my actual tax break now, not in the future.

you dont know that you'll even be getting a net tax break since tax brackets could double and you just deferred all of your taxes to a time when we have taxes equivalent to most of western europe.  There is no limit to hypotheticals one could propose to make anything look better one way or another .. you just have to go off of what we know to exisit now unless there is a great probability of a known change coming - which no one really can know. 
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: DarkandStormy on October 27, 2017, 08:44:45 AM
Who has even said/reported that Roth 401k contributions would still exist?  $2,400 could be the limit to BOTH pre-tax and Roth contributions, no?

no this is incorrect. the original report on this said roth would still exist up to its current limit.

Thank you.  Too much back and forth and flip-flopping, I can't keep up.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sokoloff on October 27, 2017, 08:50:27 AM
The median household income is around $55k. You where making 20% more than that by yourself, and that was 20 years ago?! You were certainly wealthier than that majority of the population. I'd say that qualify as "rich".
My records from that era indicate that my net worth was under $90K in 1997. That's under $140K in today's money. Is someone with $140K in assets today "rich"?

Do not confuse income with wealth. Income is, at best, the first derivative of wealth.

Well lets see.
https://www.fool.com/investing/general/2015/05/17/americans-average-net-worth-by-age-how-do-you-comp.aspx

At age <35 the average net worth is ~$7,000. Yet in your 20s you had a net worth equal to the average person at 55-64 years old (including home equity). And as boarder pointed out; in the 96th percentile of the population. Uhm, so yes I'd say the IMO you were/are rich. Are you going to argue that an income in the top 12% and top 4% in assets is not "rich"?
Ask 100 people off the street to define "rich". How many of them will make "for their age group" part of that definition or even mention it? My guess is fewer than 5, possibly 0.

If someone is in the top 4% of net worth (including home equity) in the US ($3MM USD), I agree they're "rich". (Believe it or not, you will get arguments against even that.)
If someone has $140K, they're barely above the median (https://dqydj.com/net-worth-percentile-calculator-united-states/) and I don't agree they're "rich", whether they're 2, 27, or 72 years old.

I am far from complaining about my situation and agree that I've been very fortunate to be good at and enjoy doing something that turns out be quite valuable to companies. I also tend to think that words tend to have established meanings and using the established meaning as the default is more efficient in discussions.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Scandium on October 27, 2017, 09:04:30 AM
The median household income is around $55k. You where making 20% more than that by yourself, and that was 20 years ago?! You were certainly wealthier than that majority of the population. I'd say that qualify as "rich".
My records from that era indicate that my net worth was under $90K in 1997. That's under $140K in today's money. Is someone with $140K in assets today "rich"?

Do not confuse income with wealth. Income is, at best, the first derivative of wealth.

Well lets see.
https://www.fool.com/investing/general/2015/05/17/americans-average-net-worth-by-age-how-do-you-comp.aspx

At age <35 the average net worth is ~$7,000. Yet in your 20s you had a net worth equal to the average person at 55-64 years old (including home equity). And as boarder pointed out; in the 96th percentile of the population. Uhm, so yes I'd say the IMO you were/are rich. Are you going to argue that an income in the top 12% and top 4% in assets is not "rich"?
Ask 100 people off the street to define "rich". How many of them will make "for their age group" part of that definition or even mention it? My guess is fewer than 5, possibly 0.

Just because most people aren't capable of considering the distinctions doesn't make it invalid. If you asked people who's better off between a 90 year old with $250,000 or a 2 year old do you think they would say age mattered? Just from the power of compounding alone I would say it does.

Someone with your $140,000 retiring at age 67 is not in a especially good spot. That could be home equity alone in many cases
If you at age 27 invested that money you would have $2 million when you reach 67.

I'd say "for age group" is a pretty important distinction!
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CheapScholar on October 27, 2017, 09:37:28 AM
Boarder,

Sure, the hypotheticals are endless and we could have Western European style tax brackets when I start withdrawing.  But, for "mustashians" or people on this board, that risk is quite low.  Because even crazy Western European tax brackets don't tax to death people living on 30-40k per year.  If I pay off my house and build up my traditional 401k to about 750k (remind you of anyone?) and start withdrawing 30k per year, it's very unlikely I'd pay more than 10% income tax on any dollars. 

The truth is, if you're a family making between 100k-150k and you've had both spouses taking the full 18k pretax deduction, you've been dodging a lot of taxes.  This is the boat I'm in.  Rothifying 401k accounts will be a loss for me, unless they stick true to their plan of doubling the standard deduction and they ALSO set that 15% bracket very high. 
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sokoloff on October 27, 2017, 09:41:06 AM
Ask 100 people off the street to define "rich". How many of them will make "for their age group" part of that definition or even mention it? My guess is fewer than 5, possibly 0.
Just because most people aren't capable of considering the distinctions doesn't make it invalid.
But what people think a word means is a substantial part of the definition of the word.

What the dictionary says combined with what people understand a word to mean is what it means. (The dictionary is the low-pass filter on the population's usage of words, so you can't solely rely on the dictionary. In this case though, I argue there is no substantial difference in meaning across the broad population.)
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Scandium on October 27, 2017, 09:54:52 AM
Ask 100 people off the street to define "rich". How many of them will make "for their age group" part of that definition or even mention it? My guess is fewer than 5, possibly 0.
Just because most people aren't capable of considering the distinctions doesn't make it invalid.
But what people think a word means is a substantial part of the definition of the word.

What the dictionary says combined with what people understand a word to mean is what it means. (The dictionary is the low-pass filter on the population's usage of words, so you can't solely rely on the dictionary. In this case though, I argue there is no substantial difference in meaning across the broad population.)
Ok, so what is the definition of "rich". I honestly haven't checked. I'd guess something like "has more money and/or income than x% of the population?"

Even if you didn't have more than the general (much older) population at 27, due to compounding you will at some point, unless you throw it away. You're probably better off than 90% of people. So it doesn't really matter that much for our discussion here.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sol on October 27, 2017, 09:58:46 AM
Ask 100 people off the street to define "rich". How many of them will make "for their age group" part of that definition or even mention it? My guess is fewer than 5, possibly 0.

The problem here is that "rich" has always been a relative term like, "tall".  My four year old is tall, for her age, but she is still short.  My wife is tall, compared to all adult women on Earth, but she is still short compared to me.  I am 6'4" and think of myself as tall, but I am short for an NBA player.

So if you were to ask me "are you rich" or "are you tall" I can't really answer that question without providing some context.  Yea, I'm guess I'm pretty rich, but I'm not like RICH rich.  I know a ton of people who are waaaaaay more rich than I am, and my net worth is much closer to zero than it is to their net worth, so to them I am not rich.  A grown man who is 6'4" and a grown man who is 5'8" are almost indistinguishable to Manute Bol, who towers over both of us by more than a foot.  My daughter and her classmates are all short to me, despite having an acute sense of who among them is tallest.

So let's go easy on the "who is rich" question for a while.  The context absolutely matters, and I understand why people who are objectively far richer than average, compared to the planet as a whole, still feel financially insecure in America.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on October 27, 2017, 09:59:37 AM
Boarder,

Sure, the hypotheticals are endless and we could have Western European style tax brackets when I start withdrawing.  But, for "mustashians" or people on this board, that risk is quite low.  Because even crazy Western European tax brackets don't tax to death people living on 30-40k per year.  If I pay off my house and build up my traditional 401k to about 750k (remind you of anyone?) and start withdrawing 30k per year, it's very unlikely I'd pay more than 10% income tax on any dollars. 

The truth is, if you're a family making between 100k-150k and you've had both spouses taking the full 18k pretax deduction, you've been dodging a lot of taxes.  This is the boat I'm in.  Rothifying 401k accounts will be a loss for me, unless they stick true to their plan of doubling the standard deduction and they ALSO set that 15% bracket very high.

I fully agree - and think trump will lose a ton of upper middle class voters. We're in the same income level range as you are. but for the general population as a whole we are outliers.  We're already set for life on this board so a few extra pennies here or there may not be the best for the general population ... you're saving 120k per year you dont reach FI that much faster with roth vs trad when you're saving at that level and spending 30k.

at the end of the day you too are furthering the point that i made this is a tax break for the rich(however you choose to define that) - you will be no worse off in life if it goes away.

I'm also just playing devils advocate here - i dont want the 401k limit to be reduced but it seems many are up in arms about emailing their senators and calling them.  who really cares. 
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: MrMoneySaver on October 27, 2017, 10:16:27 AM
Quote
almost indistinguishable to Manute Bol

Completely indistinguishable, as he died several years ago :-)

Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: teen persuasion on October 27, 2017, 10:30:22 AM
Changing 401k limits hurts low income people who use EITC.  If this change were enacted, it would cost us close to $5k in lost credits (federal and state, because state is a percentage of federal credit), and maybe $2600+ in additional tax.  That would definitely slow down our path to FIRE, since I use those refunds to fund our Roth IRAs.

Some posters were of the opinion that simply eliminating the 401k altogether and increasing the IRA contribution limits would be good enough (may have been on another thread on this same topic).  This is also problematic for EITC eligible families.  Contributions thru payroll 401k lower AGI and line 7 wages (EITC tests both), but IRA contributions only lower AGI.  Thus IRAs are not equivalent and useless for EITC eligibility, unless some type of payroll deduction can be added.

I don't want to see the 401k limit get changed downward, and nothing against you, but this comment is a great example of why the tax code is too complicated and needs to be simplified.
I wholeheartedly agreed about the need for simplification, but do you honestly think that the current proposal actually accomplishes that?

NOPE.

The plan they all ran on, Paul Ryan's "Better Way" tax plan, would have been a giveaway to the rich but it also simplified the tax code. While I didn't agree with everything, specifically the top bracket %, most of it was a step in the right direction. That plan didn't call for weakening retirement plans. It actually called for expanding them with the creation of a new simplified retirement plan called a USA(Universal Savings account). It would act like a Roth without the penalties for early withdrawals.

The only way limiting 401ks to $2400 makes any sense is if they are trying to replace them with USA plans, but if that is the idea why don't they just say that? "We are removing all of your tax advantaged plans" sounds a lot worse than "we created a better simplified tax advantaged plan."

The Better Way tax plan also simplified capital gains taxation. Instead of LTCG having their own separate tax brackets the tax plan calls for LTCG being taxed at half of your normal rate. This ends up being pretty close to the current system

Source: https://abetterway.speaker.gov/_assets/pdf/ABetterWay-Tax-PolicyPaper.pdf

Agree that the current tax code is way too complicated because of constant tinkering around the edges leading to convoluted systems.  It does seem to be time to clean house, and intentionally redesign parts that have overlapping details and obvious holes.  The complication is that other areas, outside of federal taxation, have built their own evolving convoluted systems around bits and pieces of our current tax code - state tax systems, ACA credits, FAFSA education financial aid, student loan IBR, etc.

I don't get the impression they are truly redesigning the tax code to simplify it, but are looking for more places to tinker around the edges, to the benefit of certain groups, whoever they may be this time.  They have no idea of the cascading unintended consequences they will unleash, because everything is so interconnected.

It's making me remember my CS professors admonishing against global variables, and altering their values.  You never knew when some other part of a program might also use/alter that variable.  You also never knew when a future extension of the program might decide to "borrow" that convenient variable for something entirely unthinkable at design time.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: DarkandStormy on October 27, 2017, 11:32:35 AM
Emailed my Senators and HoR rep.  Will call next week when details are supposed to be out.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: talltexan on October 27, 2017, 11:34:21 AM
Thanks to a healthy dose of NC gerrymandering, my representative is a democrat . . . no need to call and pester his staff about it.

Both of my state's senators are Republicans, but they are clearly such jerky boys of huge proportion that I doubt either cares what we think. They care so little it makes me long for ole Jesse . . . which I never thought would happen.

Another NC person here. I called Burr so many times he sent me a printed letter through USPS. I always make sure to indicate I'm registered GOP so he knows I'll be voting in a primary.

I think it's going to be very difficult to separate him from Trump on any issue. His stump speech talks about how he made money in business before being in government: he styles himself as a "Mini-Trump", a business-background outsider who doesn't understand these Washington Politicians.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: OurTown on October 27, 2017, 11:59:42 AM
https://www.saveoursavings.org/from-congress

This is promising.  While it is not an outright declaration of opposition, they are singing the right tune on both sides of the aisle.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: doneby35 on October 27, 2017, 12:19:25 PM
https://www.saveoursavings.org/from-congress

This is promising.  While it is not an outright declaration of opposition, they are singing the right tune on both sides of the aisle.

Looks good, I just used their template and sent a message to my dear senators who care deeply about my retirement savings.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: OurTown on October 27, 2017, 12:21:26 PM
I called again today.  Actually, there is a good pitch to be made whether you have R or D congress critters.

D = this is a tax on the middle class.
R = this is a tax on individuals trying to take personal responsibility for their retirement.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CheapScholar on October 27, 2017, 01:16:34 PM
I called again today.  Actually, there is a good pitch to be made whether you have R or D congress critters.

D = this is a tax on the middle class.
R = this is a tax on individuals trying to take personal responsibility for their retirement.

Not really true considering GOP is writing the tax overhaul without Democratic consideration and does not need their support.  Calling your democratic congressman is about as good as calling your grandmother. 
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: OurTown on October 27, 2017, 01:18:34 PM
My grandmothers are long dead and I have no D congress people.  So you're right, the experience would be similar.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on October 27, 2017, 01:18:42 PM
I called again today.  Actually, there is a good pitch to be made whether you have R or D congress critters.

D = this is a tax on the middle class.
R = this is a tax on individuals trying to take personal responsibility for their retirement.

Not really true considering GOP is writing the tax overhaul without Democratic consideration and does not need their support.  Calling your democratic congressman is about as good as calling your grandmother.

shes a republican so its better right? b/c she may call her senator too.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sherr on October 27, 2017, 02:06:19 PM
Thanks to a healthy dose of NC gerrymandering, my representative is a democrat . . . no need to call and pester his staff about it.

Both of my state's senators are Republicans, but they are clearly such jerky boys of huge proportion that I doubt either cares what we think. They care so little it makes me long for ole Jesse . . . which I never thought would happen.

Another NC person here. I called Burr so many times he sent me a printed letter through USPS. I always make sure to indicate I'm registered GOP so he knows I'll be voting in a primary.

I think it's going to be very difficult to separate him from Trump on any issue. His stump speech talks about how he made money in business before being in government: he styles himself as a "Mini-Trump", a business-background outsider who doesn't understand these Washington Politicians.

Burr has already explicitly declared that 2016 was going to be his last campaign. He could always go back on that, but I doubt it. So he probably doesn't care.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: I'm a red panda on October 27, 2017, 02:12:57 PM
https://www.saveoursavings.org/from-congress

This is promising.  While it is not an outright declaration of opposition, they are singing the right tune on both sides of the aisle.

Looks good, I just used their template and sent a message to my dear senators who care deeply about my retirement savings.

I highly recommend calling, or at the very least writing your own email.

They really don't care much about form letters.

I think most research shows that they care about 1) in-office visits 2)town halls (assuming they let you in...) 3)phone calls 4) letters 5)personal emails 6)form emails

Basically the easier it is to do, the less likely a senator is to care.

Of course, I'm of the opinion that they only care about 1)large contribution to campaign and 2) what party tells them to do.   But it doesn't prevent me from trying
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CheapScholar on October 27, 2017, 02:16:47 PM
Good God!!!  Now there is a new article quoting Kevin Brady (TX rep and main architect of the tax bill) saying GOPmay RAISE the deduction to $20,000.

https://www.cnbc.com/2017/10/27/rep-kevin-brady-says-lawmakers-considering-raising-401k-contribution-limit.html

Brady isn't being clear if this is pretax or includes Roth, but he (or the short article) is implying it doesn't include Roth.  The ping pong continues and it just gets weirder!
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: protostache on October 27, 2017, 02:23:05 PM
I think the likelihood that this congress actually passes anything at all is pretty low at this point. I would be astounded if they accomplish anything other than a simple 10 year rate cut.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: DavidAnnArbor on October 27, 2017, 02:23:14 PM
The point of my statement is by in large the 401k benefits the rich/wealthy/high income earners of which you entirely fit into each of these categories so further proving the point regardless of if you want to admit you were that well off or not.

And getting rid of the 401k tax free investing except for $2,400 in order to free money up to provide tax cuts for the really rich, doesn't help the average or poor income worker.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Scandium on October 27, 2017, 02:23:25 PM
Good God!!!  Now there is a new article quoting Kevin Brady (TX rep and main architect of the tax bill) saying GOPmay RAISE the deduction to $20,000.

https://www.cnbc.com/2017/10/27/rep-kevin-brady-says-lawmakers-considering-raising-401k-contribution-limit.html

Brady isn't being clear if this is pretax or includes Roth, but he (or the short article) is implying it doesn't include Roth.  The ping pong continues and it just gets weirder!
I put $50 on nothing changing.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CheapScholar on October 27, 2017, 02:27:05 PM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: MrMoneySaver on October 27, 2017, 02:37:03 PM
I put $50 on nothing changing.

$50 pretax, or Rothified?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: BTDretire on October 27, 2017, 05:21:36 PM
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?

Only about 33% of workers take advantage of a 401k, of those, most are in the 3, 4, and 5, earnings quintile and also have much, much more in their accounts.
So the 401K helps the wealthy more than the poor, and the poor would have a hard time hitting the IRA cap.
https://peoplespolicyproject.org/2017/10/21/capping-401k-tax-benefits-is-generally-a-good-idea/
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: BTDretire on October 27, 2017, 05:27:51 PM
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!
Fake news :-) you're not including the other changes to the tax code (if they happen). Lower tax rate, Increased standard deduction, child tax Credit, etc.
 But I'll admit, we have no idea, what we will have until it is passed, if it is passed.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: ixtap on October 27, 2017, 05:31:33 PM
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?

Only about 33% of workers take advantage of a 401k, of those, most are in the 3, 4, and 5, earnings quintile and also have much, much more in their accounts.
So the 401K helps the wealthy more than the poor, and the poor would have a hard time hitting the IRA cap.
https://peoplespolicyproject.org/2017/10/21/capping-401k-tax-benefits-is-generally-a-good-idea/

Woah: "The 50th percentile worker has $5,000 in their retirement accounts, while the 90th percentile worker has $274,000." That 50th percentile worker is in the 3rd quintile, which is our statistical middle class. These are the folks that these programs should be focused on helping.

We really need to get onboard with opt out programs, don't we?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: BTDretire on October 27, 2017, 06:29:31 PM
I'd prefer elimination of income tax all together kill off a majority of the IRS as well as the large tax companies - who have huge lobbies so thats why this wont happen.  but movement to a sales tax based system eliminates many many loop holes people can jump thru to avoid taxes.
VAT all the way! Tax consumption and reward saving/investing.
I would have liked the VAT in my saving years, not now that I'm nearing living off my nestegg.
No!
Quote
Except they are getting rid of estate taxes.
Doesn't that only affect estates over $5 million?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: BTDretire on October 27, 2017, 06:51:42 PM
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 :-)
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: doneby35 on October 27, 2017, 08:37:31 PM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: doggyfizzle on October 27, 2017, 08:55:14 PM
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.

Have you factored in the loss of your $4050 personal exemptions per person that you will lose under the proposed tax plan?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Zamboni on October 27, 2017, 10:01:50 PM
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?

Only about 33% of workers take advantage of a 401k, of those, most are in the 3, 4, and 5, earnings quintile and also have much, much more in their accounts.
So the 401K helps the wealthy more than the poor, and the poor would have a hard time hitting the IRA cap.
https://peoplespolicyproject.org/2017/10/21/capping-401k-tax-benefits-is-generally-a-good-idea/

Woah: "The 50th percentile worker has $5,000 in their retirement accounts, while the 90th percentile worker has $274,000." That 50th percentile worker is in the 3rd quintile, which is our statistical middle class. These are the folks that these programs should be focused on helping.

We really need to get onboard with opt out programs, don't we?

Yes, I agree that employee sponsored enrollments should be opt out, not opt in. Research shows that almost no one will opt out (of anything) if it requires separate paperwork. The default should be the age-appropriate target date funds with low fees. That change alone would make a big difference for a whole bunch of workers.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Undecided on October 27, 2017, 10:27:40 PM
So people who upset about this, are you going to call/write your congressperson?  Or just complain here?

I have a Republican representative, in an otherwise solidly “blue” state (with a high state income
tax)—I’ve written, but I think he’s pretty confident he can curry favor with both Trump and the mainstream Republicans and package it for the voters who send him to D.C. (against their own real interests, if you ask me).
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Undecided on October 27, 2017, 10:42:59 PM

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.

Your tax increases will pay for cuts for hedge fund managers and/or “defense” spending.

My combined federal and stage income taxes and federal payroll taxes will be around 43% this year. I haven’t been calling for tax cuts, but I think it’s absurd that any proposal would have me pay anything more while billionaires and “pass through” business owners get cuts
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: SubL stache on October 28, 2017, 06:39:15 AM
If they cut the 401k limits I will start kneeling when the national anthem plays.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on October 28, 2017, 07:12:57 AM
If they cut the 401k limits I will start kneeling when the national anthem plays.

Shrinking protected lands would make me kneel not a few dollars.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: StarBright on October 28, 2017, 07:15:23 AM
I called again today.  Actually, there is a good pitch to be made whether you have R or D congress critters.

D = this is a tax on the middle class.
R = this is a tax on individuals trying to take personal responsibility for their retirement.

This is the tack I took in my email and phone call to my rep. I basically said "look, we keep our heads down and we follow all the "rules" to not be a drain on society*: college, pay off college loans, save up for down payment on our house, have children when financially stable and now that our oldest is finally in kindergarten we want to use that extra child care money to save a little more in our 401ks. Why are we hearing rumors that you guys are changing the rules on us? Why do you want to make it even harder for us to save for retirement?

 *just want to insert a note that I was trying to speak their language, I don't actually think of down on their luck folks as a "Drain."

The girl I talked to was like "uhh, yeah, uh . . . I know. I will pass your message on to the congressman"
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: rab-bit on October 28, 2017, 07:15:53 AM
And now this:

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

Tennis anyone?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CheapScholar on October 28, 2017, 08:29:04 AM
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.

Have you factored in the loss of your $4050 personal exemptions per person that you will lose under the proposed tax plan?

I have not.  Only have 1 child.  I'm not going to do any detailed analysis until I see where the brackets fall.  Plus, the latest reports now suggest that the 20K for 401(k)s is the sum of the traditional and the Roth.  Where that breakdown occurs is huge obviously.  If the traditional is $2,400 I'm paying taxes.  If it's closer to $10,000 or $15,000 I'll probably have a very low tax liability.  I'd really hate to see the traditional deduction go below $10,000.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: ixtap on October 28, 2017, 08:57:34 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: TomTX on October 28, 2017, 10:12:48 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: DarkandStormy on October 30, 2017, 09:14:36 AM
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
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on October 30, 2017, 09:31:27 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: DarkandStormy on October 30, 2017, 09:40:36 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on October 30, 2017, 09:45:28 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Memphis Mustache on October 31, 2017, 10:59:50 AM
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.

Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on October 31, 2017, 11:33:46 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Heywood57 on October 31, 2017, 11:35:29 AM
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/

Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sol on October 31, 2017, 11:44:44 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Memphis Mustache on October 31, 2017, 11:51:53 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Memphis Mustache on October 31, 2017, 11:53:38 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sokoloff on October 31, 2017, 12:16:31 PM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Memphis Mustache on October 31, 2017, 12:31:34 PM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: I'm a red panda on October 31, 2017, 12:47:28 PM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on October 31, 2017, 01:16:49 PM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sol on October 31, 2017, 01:27:12 PM
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. 
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Memphis Mustache on October 31, 2017, 02:36:44 PM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sokoloff on October 31, 2017, 03:38:10 PM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CheapScholar on October 31, 2017, 04:40:49 PM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Travis on October 31, 2017, 04:53:30 PM
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. 
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: doneby35 on October 31, 2017, 05:01:21 PM
I dislike both parties but I honestly think that the GOP is being a huge asshole at this point.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Peony on October 31, 2017, 05:04:43 PM
^^^What Sol just said.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: TempusFugit on October 31, 2017, 05:31:35 PM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Undecided on October 31, 2017, 06:11:20 PM
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).
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CheapScholar on October 31, 2017, 06:25:16 PM
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!
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: doneby35 on October 31, 2017, 07:11:41 PM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on October 31, 2017, 08:08:06 PM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: DavidAnnArbor on October 31, 2017, 08:58:28 PM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sol on October 31, 2017, 09:26:26 PM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: doggyfizzle on October 31, 2017, 09:32:45 PM
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).
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sokoloff on October 31, 2017, 10:15:52 PM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: talltexan on November 01, 2017, 07:03:59 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: alexpkeaton on November 01, 2017, 07:29:57 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on November 01, 2017, 08:10:44 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: dandarc on November 01, 2017, 08:13:35 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on November 01, 2017, 08:15:24 AM
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?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: dandarc on November 01, 2017, 08:19:34 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Outside the Box on November 01, 2017, 09:18:56 AM
Good analysis:

Beware of Retirement Tax Gimmicks

https://medium.com/@kamin_83016/beware-of-retirement-tax-gimmicks-9b26246a70b9
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: NextTime on November 01, 2017, 10:13:25 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on November 01, 2017, 10:23:30 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CheapScholar on November 01, 2017, 10:35:32 AM
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
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: ixtap on November 01, 2017, 10:39:27 AM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on November 01, 2017, 11:07:57 AM
The estate tax needs to stay sounds like the senate will force it to stay.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: TempusFugit on November 01, 2017, 05:21:26 PM
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. 
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: DavidAnnArbor on November 01, 2017, 05:31:24 PM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Undecided on November 01, 2017, 05:45:05 PM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sol on November 01, 2017, 05:54:57 PM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sokoloff on November 01, 2017, 05:59:52 PM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: maizefolk on November 01, 2017, 06:10:26 PM
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.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CheapScholar on November 01, 2017, 06:14:12 PM
Now there are a few local papers circulating an AP report from an hour ago quoting an anonymous senior GOP lawmaker that the tax bill will have zero changes to 401(k) deductions when released tomorrow.

At this point we should just wait 12 hours or so and see.  But, it appears the WH is winning this battle against Kevin Brady and House leadership. 
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: aspiringnomad on November 01, 2017, 08:47:32 PM
Nothing really in here, but it's a pretty good summary of where things stand:

http://www.reuters.com/article/us-usa-tax-issues-factbox/factbox-trump-tax-plan-stumbles-on-local-tax-deduction-401-idUSKBN1D1681?il=0

Nobody knew that tax reform could be so complicated.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on November 02, 2017, 04:23:45 AM
They are trying to fix the income problem by shifting where the income comes from. The simple solution would be to cut spending to pay for tax cuts. Like defence.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CheapScholar on November 02, 2017, 07:18:36 AM
They are trying to fix the income problem by shifting where the income comes from. The simple solution would be to cut spending to pay for tax cuts. Like defence.

+ 1,000,000,000
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: toganet on November 02, 2017, 07:26:58 AM
They are trying to fix the income problem by shifting where the income comes from. The simple solution would be to cut spending to pay for tax cuts. Like defence.

Yes, I wish we could have a discussion about defense spending, but it's become a sacred cow for both parties.  A big reason for that is that much (if not most) of the tax dollars spent on defense can be better understood as money paid to private corporations to provide goods and services.  The corporations provide jobs across the country, which means a) congress doesn't want to cut jobs in their home district and risk re-election, and b) it's redistribution of tax dollars to companies who donate a lot of money to the candidates who can ensure their continued gravy train.

Add to that that things like bombs are very expensive, one-time-use items, and you've got a pretty nice business model.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sherr on November 02, 2017, 07:39:18 AM
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.

This is not even close to true. Mathematically they're the same if your *marginal* tax rate now is equal to your *average* tax rate in retirement.

A quick back-of-the-envelope calculation assuming you're married, in the 25% tax bracket, and today's tax rates (which means all numbers are expected to adjust with inflation, so the answer is in also in inflation-adjusted dollars) tells me you'd have to withdraw about $260,000 / year from your Traditional 401k / IRA in retirement before your average tax rate would be 25%.

If you're like most Americans / especially people on the forum and you're looking at around $40,000 instead, then your average tax rate in retirement would be 9% with Traditional accounts. That is an enormous difference from 25%, so no they are not "the same". Cutting Traditional contributions in favour of Roth is indeed a huge additional tax on the middle / upper middle class.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on November 02, 2017, 07:42:05 AM
They are trying to fix the income problem by shifting where the income comes from. The simple solution would be to cut spending to pay for tax cuts. Like defence.

Yes, I wish we could have a discussion about defense spending, but it's become a sacred cow for both parties.  A big reason for that is that much (if not most) of the tax dollars spent on defense can be better understood as money paid to private corporations to provide goods and services.  The corporations provide jobs across the country, which means a) congress doesn't want to cut jobs in their home district and risk re-election, and b) it's redistribution of tax dollars to companies who donate a lot of money to the candidates who can ensure their continued gravy train.

Add to that that things like bombs are very expensive, one-time-use items, and you've got a pretty nice business model.

yeah b/c america has a jobs problem not a spending problem.

Man lets think about that for a minute.  the government has a spending problem
the citizens have a spending problem. which makes a need for more jobs to exist.

and here we are on a forum that discusses mindful spending.  This cult needs to grow and get our fingers into the government.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: ZiziPB on November 02, 2017, 07:52:04 AM
Latest and greatest: https://www.bloomberg.com/news/articles/2017-11-02/here-are-the-house-gop-s-tax-bill-talking-points

SALT preserved up to $10K
No changes to 401k
AMT eliminated completely
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Helvegen on November 02, 2017, 07:57:15 AM
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.

This is not even close to true. Mathematically they're the same if your *marginal* tax rate now is equal to your *average* tax rate in retirement.

A quick back-of-the-envelope calculation assuming you're married, in the 25% tax bracket, and today's tax rates (which means all numbers are expected to adjust with inflation, so the answer is in also in inflation-adjusted dollars) tells me you'd have to withdraw about $260,000 / year from your Traditional 401k / IRA in retirement before your average tax rate would be 25%.

If you're like most Americans / especially people on the forum and you're looking at around $40,000 instead, then your average tax rate in retirement would be 9% with Traditional accounts. That is an enormous difference from 25%, so no they are not "the same". Cutting Traditional contributions in favour of Roth is indeed a huge additional tax on the middle / upper middle class.

I thought the author was more referring to the super rich plugging their retirement accounts with severely undervalued stocks and other assets, then letting them blow up to their 'true' value inside the account. If you have a roth account, it becomes very apparent why the rich would want to game the system (more) this way and actually want more roth space to play with.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: DavidAnnArbor on November 02, 2017, 08:00:58 AM
Latest and greatest: https://www.bloomberg.com/news/articles/2017-11-02/here-are-the-house-gop-s-tax-bill-talking-points

SALT preserved up to $10K
No changes to 401k
AMT eliminated completely

How could this be revenue neutral and not blow up the deficit bigly ?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sherr on November 02, 2017, 08:11:44 AM
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.

This is not even close to true. Mathematically they're the same if your *marginal* tax rate now is equal to your *average* tax rate in retirement.

A quick back-of-the-envelope calculation assuming you're married, in the 25% tax bracket, and today's tax rates (which means all numbers are expected to adjust with inflation, so the answer is in also in inflation-adjusted dollars) tells me you'd have to withdraw about $260,000 / year from your Traditional 401k / IRA in retirement before your average tax rate would be 25%.

If you're like most Americans / especially people on the forum and you're looking at around $40,000 instead, then your average tax rate in retirement would be 9% with Traditional accounts. That is an enormous difference from 25%, so no they are not "the same". Cutting Traditional contributions in favour of Roth is indeed a huge additional tax on the middle / upper middle class.

Whoops, silly ol' me was using the single tax bracket numbers. The real numbers for married-filing-jointly are:
Break-even at 25%: $360,000 /year retirement spending
Average tax rate at $40,000 spending: 8%
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: dandarc on November 02, 2017, 08:17:10 AM
Latest and greatest: https://www.bloomberg.com/news/articles/2017-11-02/here-are-the-house-gop-s-tax-bill-talking-points

SALT preserved up to $10K
No changes to 401k
AMT eliminated completely

How could this be revenue neutral and not blow up the deficit bigly ?
Probably isn't, but if I've read some things correctly, all they have to do is fudge the numbers enough to show it is less than $1.5 trillion to the bad over the next 10 years and get enough democrats on board in the senate to wave a rule there.  That or just live with the mandatory spending cuts in a lot of programs that will kick in if they don't wave the senate rule.  So much of government budgeting is complete bullshit, I think they'll be able to show whatever needs to be shown on the "revenue neutral" front.  If they can muster the votes to actually pass it, which I don't think is a certainty.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: thenextguy on November 02, 2017, 08:34:57 AM
Latest and greatest: https://www.bloomberg.com/news/articles/2017-11-02/here-are-the-house-gop-s-tax-bill-talking-points

SALT preserved up to $10K
No changes to 401k
AMT eliminated completely

How could this be revenue neutral and not blow up the deficit bigly ?

Haha...revenue neutral? Hilarious. Yes, it will blow up the deficit.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: I'm a red panda on November 02, 2017, 08:52:39 AM
Latest and greatest: https://www.bloomberg.com/news/articles/2017-11-02/here-are-the-house-gop-s-tax-bill-talking-points

SALT preserved up to $10K
No changes to 401k
AMT eliminated completely

How could this be revenue neutral and not blow up the deficit bigly ?

My guess is it won't be revenue neutral.


But it does seem like there are plans to tax offshore earnings higher (which surprises me. That isn't very business friendly.)
They also seem to be working to prevent people from using the pass through rate for their personal taxes.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: 2Birds1Stone on November 02, 2017, 09:19:28 AM
Happy they aren't touching 401k!
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on November 02, 2017, 09:31:03 AM
You see those child tax credits - an extra 600 per kid plus 300 per parent ... this all looks to be great for mustachians so far.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: I'm a red panda on November 02, 2017, 09:44:53 AM
You see those child tax credits - an extra 600 per kid plus 300 per parent ... this all looks to be great for mustachians so far.

I'd say this looks to be great for billionaires.  Still remains to be seen how great it is for most mustachians (who are a pretty wide range of income, though I think skew high "normal" income levels).
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on November 02, 2017, 09:49:13 AM
You see those child tax credits - an extra 600 per kid plus 300 per parent ... this all looks to be great for mustachians so far.

I'd say this looks to be great for billionaires.  Still remains to be seen how great it is for most mustachians (who are a pretty wide range of income, though I think skew high "normal" income levels).
its a tax credit when you FIRE this should help eliminate all federal taxes depending on your spending level.  and will allow for more tax gain harvesting.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: frugalecon on November 02, 2017, 09:56:30 AM
Based on the text (Section 1501), looks like the plan eliminates back door Roths. Oh well...
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: TexasRunner on November 02, 2017, 09:58:34 AM
I'm personally glad they are slashing the mortgage deduction.

Its still 500K.  No reason in my opinion to subsidize an excessive lifestyle.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: ixtap on November 02, 2017, 10:08:07 AM
Based on the text (Section 1501), looks like the plan eliminates back door Roths. Oh well...

Well, it makes sense. Does it also apply to mega back door Roths?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: frugalecon on November 02, 2017, 10:11:00 AM
Based on the text (Section 1501), looks like the plan eliminates back door Roths. Oh well...

Well, it makes sense. Does it also apply to mega back door Roths?

I may have spoken too soon..I was inferring from a description...need to find the text of the actual bill. Sorry if alarm is unwarranted.

Here is the text of the summary document:

Provision: Under the provision, the rule allowing recharacterization of IRA contributions and conversions would be repealed. The provision would be effective for tax years beginning after 2017.

Looking at it again, I think I was hasty with my conclusion,
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on November 02, 2017, 10:13:21 AM
Running tally of what i've found thats relevant to this group

25% bracket starts at 90k/45k

standard deduction now 24/12

Child tax credit 1600 up from 1000 plus 300 credit per parent

Mortgage deduction up to 500k purchase price

SAL Property tax Capped at 10k deduction

havent found anything on SAL income Tax

Still cant find anything on personal exemptions i assume they were eliminated
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: frugalecon on November 02, 2017, 10:15:32 AM
Running tally of what i've found thats relevant to this group

25% bracket starts at 90k/45k

standard deduction now 24/12

Child tax credit 1600 up from 1000

Mortgage deduction up to 500k purchase price

SAL Property tax Capped at 10k deduction

havent found anything on SAL income Tax

Still cant find anything on personal exemptions i assume they were eliminated

Deductibility of alimony is eliminated, which may apply to some. Personal exemptions are eliminated.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sol on November 02, 2017, 10:16:04 AM
Running tally of what i've found thats relevant to this group

25% bracket starts at 90k/45k

standard deduction now 24/12

Child tax credit 1600 up from 1000 plus 300 credit per parent

Mortgage deduction up to 500k purchase price

SAL Property tax Capped at 10k deduction

havent found anything on SAL income Tax

Still cant find anything on personal exemptions i assume they were eliminated

Keep up the good work, boarder.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: starguru on November 02, 2017, 10:18:54 AM
What does the mortgage interest rule mean?  Does it mean if the value of the home is more than 500k, or the value of the mortgage is more than 500k?  Is 500k a hard cut in that you get the break if your mortgage is 499k and if it is $1 more you get no break?  Or is it somehow prorated?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sokoloff on November 02, 2017, 10:24:31 AM
I'm personally glad they are slashing the mortgage deduction.

Its still 500K.  No reason in my opinion to subsidize an excessive lifestyle.
Whether or not a fixed mortgage value is "excessive lifestyle" or not depends very much on the local cost of living, IMO. The median single-family house sales price (http://realestate.boston.com/buying/2016/06/17/cambridge-most-expensive-home-prices/) in my town hit $1.675MM last year.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: doggyfizzle on November 02, 2017, 10:30:10 AM
You see those child tax credits - an extra 600 per kid plus 300 per parent ... this all looks to be great for mustachians so far.

Do you know if the GOP proposed changing the AGI phase-out limits for the child tax credits or do they stay the same under this plan?  I've been looking all morning and can't find anything on this yet.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on November 02, 2017, 10:32:06 AM
single parents get 2/3rds of the 24k MFJ get.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on November 02, 2017, 10:32:32 AM
You see those child tax credits - an extra 600 per kid plus 300 per parent ... this all looks to be great for mustachians so far.

Do you know if the GOP proposed changing the AGI phase-out limits for the child tax credits or do they stay the same under this plan?  I've been looking all morning and can't find anything on this yet.

havent found anything on that yet.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: dandarc on November 02, 2017, 10:33:23 AM
https://waysandmeansforms.house.gov/uploadedfiles/tax_cuts_and_jobs_act_section_by_section.pdf (https://waysandmeansforms.house.gov/uploadedfiles/tax_cuts_and_jobs_act_section_by_section.pdf)

This isn't the full text, but a summary by section of the full proposed bill.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: shawndoggy on November 02, 2017, 10:33:42 AM
for those of us in states with NO state and local income tax, but relatively high property tax, this is a boon, right?  I lose a deduction I never had, and I gain a new deduction worth 10k?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on November 02, 2017, 10:35:28 AM
for those of us in states with NO state and local income tax, but relatively high property tax, this is a boon, right?  I lose a deduction I never had, and I gain a new deduction worth 10k?

You already had a deduction on your property taxes now its capped
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: ixtap on November 02, 2017, 10:36:29 AM
for those of us in states with NO state and local income tax, but relatively high property tax, this is a boon, right?  I lose a deduction I never had, and I gain a new deduction worth 10k?

Why weren't you deducting your property tax before?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on November 02, 2017, 10:36:45 AM
The tax credit phase out for children now stars at 230k for MFJ half that for single.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: shawndoggy on November 02, 2017, 10:37:57 AM
Why weren't you deducting your property tax before?

LOL I'm sure I do.  not as geeked out on this as you guys!  Thanks for reminding me how little I know. (usually I have to rely on my wife for that)
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: dandarc on November 02, 2017, 10:39:21 AM
Repealing recharacterizations is kind of a big deal.  Seems to be specifically targeting the Roth IRA horse race.

http://www.madfientist.com/roth-ira-horse-race/ (http://www.madfientist.com/roth-ira-horse-race/)

Not sure the juice is worth the squeeze on that one - the summary linked above seems to indicate they're repealing recharacterizations for both contributions and conversions.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: shawndoggy on November 02, 2017, 10:39:29 AM
but to restate... so long as my property taxes are $10k or less, and I already don't pay SAL income tax, this doesn't hurt me, right?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on November 02, 2017, 10:45:42 AM
child tax credits begin in 2018

I havent found anything retroactive yet but just saw that piece of info.  PRetty sure everything is 2018 - they reduced the inservice withdrawal age to 59.5 from 62
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on November 02, 2017, 10:47:22 AM
but to restate... so long as my property taxes are $10k or less, and I already don't pay SAL income tax, this doesn't hurt me, right?

depends this is an itemization thing so this is a difficult question to answer - they doubled the standard deduction to 24.4k and got rid of the personal exemptions.  Last year i had 28k in itemized deductions and got 8k in personal exemptions.  if they had left deducitons alone when i had 2 kids i would have come out far better with the old deduction/personal exemption stand point.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: doggyfizzle on November 02, 2017, 10:48:53 AM
The tax credit phase out for children now stars at 230k for MFJ half that for single.

Thank you!
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: dandarc on November 02, 2017, 10:49:55 AM
Repealing recharacterizations is kind of a big deal.  Seems to be specifically targeting the Roth IRA horse race.

http://www.madfientist.com/roth-ira-horse-race/ (http://www.madfientist.com/roth-ira-horse-race/)

Not sure the juice is worth the squeeze on that one - the summary linked above seems to indicate they're repealing recharacterizations for both contributions and conversions.
Effective for tax year 2017 - woof.  Hope no one has made a mistake on the Roth / Traditional designation.  #Can't read
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: ixtap on November 02, 2017, 10:52:03 AM
Repealing recharacterizations is kind of a big deal.  Seems to be specifically targeting the Roth IRA horse race.

http://www.madfientist.com/roth-ira-horse-race/ (http://www.madfientist.com/roth-ira-horse-race/)

Not sure the juice is worth the squeeze on that one - the summary linked above seems to indicate they're repealing recharacterizations for both contributions and conversions.
Effective for tax year 2017 - woof.  Hope no one has made a mistake on the Roth / Traditional designation.

What about people who are on the borderline? We don't contribute until we do our taxes because SO freaked out about the recharacterization the year before we were married.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: dandarc on November 02, 2017, 10:53:47 AM
Repealing recharacterizations is kind of a big deal.  Seems to be specifically targeting the Roth IRA horse race.

http://www.madfientist.com/roth-ira-horse-race/ (http://www.madfientist.com/roth-ira-horse-race/)

Not sure the juice is worth the squeeze on that one - the summary linked above seems to indicate they're repealing recharacterizations for both contributions and conversions.
Effective for tax year 2017 - woof.  Hope no one has made a mistake on the Roth / Traditional designation.

What about people who are on the borderline? We don't contribute until we do our taxes because SO freaked out about the recharacterization the year before we were married.
Strike that - says "effective for tax years after 2017".  So if this passes, probably everyone should do what you're doing - wait until you know for sure to make the contributions.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on November 02, 2017, 10:54:38 AM
Repealing recharacterizations is kind of a big deal.  Seems to be specifically targeting the Roth IRA horse race.

http://www.madfientist.com/roth-ira-horse-race/ (http://www.madfientist.com/roth-ira-horse-race/)

Not sure the juice is worth the squeeze on that one - the summary linked above seems to indicate they're repealing recharacterizations for both contributions and conversions.
Effective for tax year 2017 - woof.  Hope no one has made a mistake on the Roth / Traditional designation.

nothing is effective this year its after Dec. 31 2017
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CheapScholar on November 02, 2017, 10:57:16 AM
Can't believe they're proposing a standard deduction of $24,000 (married) and keeping the 401(k) pretax deduction where it is.

I think this is a real win for frugal upper middle class people like me.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: dandarc on November 02, 2017, 10:59:53 AM
Repealing recharacterizations is kind of a big deal.  Seems to be specifically targeting the Roth IRA horse race.

http://www.madfientist.com/roth-ira-horse-race/ (http://www.madfientist.com/roth-ira-horse-race/)

Not sure the juice is worth the squeeze on that one - the summary linked above seems to indicate they're repealing recharacterizations for both contributions and conversions.
Effective for tax year 2017 - woof.  Hope no one has made a mistake on the Roth / Traditional designation.

nothing is effective this year its after Dec. 31 2017
Yeah - re-read that and corrected myself in the immediately prior post to this one.

Anyway - suppose if you find yourself in the situation of having made a contribution that you would have recharacterized, you could still withdraw the contribution up to your tax filing deadline, along with any earnings, paying tax and penalties on the earnings.  Then make the contribution to the other one.  Probably best to just wait until you're fairly sure on income for future years though.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: therethere on November 02, 2017, 11:01:19 AM
Can't believe they're proposing a standard deduction of $24,000 (married) and keeping the 401(k) pretax deduction where it is.

I think this is a real win for frugal upper middle class people like me.

To be fair, they are eliminating exemptions. So really its only a difference of 2700 off your taxable income. Not huge in my opinion.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: ZiziPB on November 02, 2017, 11:08:08 AM
Has anyone seen anything on capital gains taxation?  Should we assume that they are taxed at 0 up to the top of the new 12% bracket?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Livewell on November 02, 2017, 11:12:00 AM
Has anyone seen anything on capital gains taxation?  Should we assume that they are taxed at 0 up to the top of the new 12% bracket?

I was just looking for the same, found no detail yet

I think that’s a safe assumption, up to $90K, although I am hoping it would get bumped up to the second bracket.

Overall this is a bad plan for our family as we live in a high tax state (CA), at least pre FIRE. 
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: dandarc on November 02, 2017, 11:14:47 AM
Has anyone seen anything on capital gains taxation?  Should we assume that they are taxed at 0 up to the top of the new 12% bracket?
Still 0-15-20, but they've separated from the tax-brackets entirely.  The "15% rate threshold" is $77,200 for MFJ.

https://waysandmeansforms.house.gov/uploadedfiles/bill_text.pdf (https://waysandmeansforms.house.gov/uploadedfiles/bill_text.pdf)
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: DarkandStormy on November 02, 2017, 11:20:13 AM
Can't believe they're proposing a standard deduction of $24,000 (married) and keeping the 401(k) pretax deduction where it is.

I think this is a real win for frugal upper middle class people like me.

Did...did you purposefully ignore the elimination of personal exemptions?  If you have kids and are taking those exemptions currently...poof.  Gone.  Suddenly, your standard deduction + exemptions NOW > deduction in new plan.

This plan absolutely screws low-income workers.  Instead of their first $9,525 of taxable income being taxed at 10%, it's taxed at 12%.  Anybody with $16,000 or less in taxable income ends up paying MORE under this proposal.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on November 02, 2017, 11:25:09 AM
Has anyone seen anything on capital gains taxation?  Should we assume that they are taxed at 0 up to the top of the new 12% bracket?
Still 0-15-20, but they've separated from the tax-brackets entirely.  The "15% rate threshold" is $77,200 for MFJ.

https://waysandmeansforms.house.gov/uploadedfiles/bill_text.pdf (https://waysandmeansforms.house.gov/uploadedfiles/bill_text.pdf)

Dang I missed that.  That sux. Was really hoping it would ride the 90k
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: ZiziPB on November 02, 2017, 11:32:08 AM
Has anyone seen anything on capital gains taxation?  Should we assume that they are taxed at 0 up to the top of the new 12% bracket?
Still 0-15-20, but they've separated from the tax-brackets entirely.  The "15% rate threshold" is $77,200 for MFJ.

https://waysandmeansforms.house.gov/uploadedfiles/bill_text.pdf (https://waysandmeansforms.house.gov/uploadedfiles/bill_text.pdf)
Interesting, so a FIREd individual could have up to $38,600 long term capital gains taxed at zero AND do a Roth conversion up to $45K at 12%?  These would not be cumulative like before?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sherr on November 02, 2017, 11:32:48 AM
My summary:
Income:
Standard deductible: 12.2k (single) / 24.4k (married filing jointly)
12% bracket limit: 45k / 90k
25% bracket limit: 200k / 260k
35% bracket limit: 500k / 1MM
39.6% bracket limit: more

Capital Gains:
0% bracket limit: 38.6k / 77.2k
15% bracket limit: 425k / 479k
20% bracket limit: more
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CheapScholar on November 02, 2017, 11:33:01 AM
Can't believe they're proposing a standard deduction of $24,000 (married) and keeping the 401(k) pretax deduction where it is.

I think this is a real win for frugal upper middle class people like me.

Did...did you purposefully ignore the elimination of personal exemptions?  If you have kids and are taking those exemptions currently...poof.  Gone.  Suddenly, your standard deduction + exemptions NOW > deduction in new plan.

This plan absolutely screws low-income workers.  Instead of their first $9,525 of taxable income being taxed at 10%, it's taxed at 12%.  Anybody with $16,000 or less in taxable income ends up paying MORE under this proposal.

Only have one kid - don't care.  I'm a JD and took tax law - I'm confident this current version of the bill is a win for my family.  Will it have any significant change in my life?  No, but I'm sure feeling better about my wife and I keeping our 403(b) deductions!  People making less than 16K taxable need to seriously rethink their life decisions and go out and earn if you ask me.  Proud day to be a Republican. 
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on November 02, 2017, 11:35:21 AM
The child and parent tax credit increase esp for one child more than offsets the loss of the personal exemption

Ok JD in tax law. I can't decipher how charitable contributions count next year. Are the above the line so I can still deduct. And count on top of the standard deduction.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Psychstache on November 02, 2017, 11:40:42 AM
Can't believe they're proposing a standard deduction of $24,000 (married) and keeping the 401(k) pretax deduction where it is.

I think this is a real win for frugal upper middle class people like me.

Did...did you purposefully ignore the elimination of personal exemptions?  If you have kids and are taking those exemptions currently...poof.  Gone.  Suddenly, your standard deduction + exemptions NOW > deduction in new plan.

This plan absolutely screws low-income workers.  Instead of their first $9,525 of taxable income being taxed at 10%, it's taxed at 12%.  Anybody with $16,000 or less in taxable income ends up paying MORE under this proposal.

Only have one kid - don't care.  I'm a JD and took tax law - I'm confident this current version of the bill is a win for my family.  Will it have any significant change in my life?  No, but I'm sure feeling better about my wife and I keeping our 403(b) deductions!  People making less than 16K taxable need to seriously rethink their life decisions and go out and earn if you ask me.  Proud day to be a Republican.

2017 Standard Deduction + Personal Exemptions with 1 kid:

12,700 SD
4,050 x3 Personal Exemptions

Total: 24,850 deduction

How is losing $450 in baseline deductions a 'win'?

Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: ZiziPB on November 02, 2017, 11:43:14 AM
Can't believe they're proposing a standard deduction of $24,000 (married) and keeping the 401(k) pretax deduction where it is.

I think this is a real win for frugal upper middle class people like me.

Did...did you purposefully ignore the elimination of personal exemptions?  If you have kids and are taking those exemptions currently...poof.  Gone.  Suddenly, your standard deduction + exemptions NOW > deduction in new plan.

This plan absolutely screws low-income workers.  Instead of their first $9,525 of taxable income being taxed at 10%, it's taxed at 12%.  Anybody with $16,000 or less in taxable income ends up paying MORE under this proposal.

Only have one kid - don't care.  I'm a JD and took tax law - I'm confident this current version of the bill is a win for my family.  Will it have any significant change in my life?  No, but I'm sure feeling better about my wife and I keeping our 403(b) deductions!  People making less than 16K taxable need to seriously rethink their life decisions and go out and earn if you ask me.  Proud day to be a Republican.

2017 Standard Deduction + Personal Exemptions with 1 kid:

12,700 SD
4,050 x3 Personal Exemptions

Total: 24,850 deduction

How is losing $450 in baseline deductions a 'win'?


But you get $1600 child tax credit plus $300 tax credit per parent.  Before, you could only get $1000 credit.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: DarkandStormy on November 02, 2017, 11:43:51 AM
Can't believe they're proposing a standard deduction of $24,000 (married) and keeping the 401(k) pretax deduction where it is.

I think this is a real win for frugal upper middle class people like me.

Did...did you purposefully ignore the elimination of personal exemptions?  If you have kids and are taking those exemptions currently...poof.  Gone.  Suddenly, your standard deduction + exemptions NOW > deduction in new plan.

This plan absolutely screws low-income workers.  Instead of their first $9,525 of taxable income being taxed at 10%, it's taxed at 12%.  Anybody with $16,000 or less in taxable income ends up paying MORE under this proposal.

Only have one kid - don't care.  I'm a JD and took tax law - I'm confident this current version of the bill is a win for my family.  Will it have any significant change in my life?  No, but I'm sure feeling better about my wife and I keeping our 403(b) deductions!  People making less than 16K taxable need to seriously rethink their life decisions and go out and earn if you ask me.  Proud day to be a Republican.

Ah yes, spoken like a true member of #cult45.  Who cares if it screws low-income workers and families?  As long as you and yours are set up, **** the rest of the country, right?

Hint: a full-time minimum wage job worker makes $15,080 in gross wages.  So, back of the envelope here, anyone with ~$27,000 in gross wages or less loses here.  That's ~$13/hour.  Proud day to be a Republican...where they just increased taxes on every person making $13/hour or less.  Good for you man, good for you.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CheapScholar on November 02, 2017, 11:45:26 AM
The child and parent tax credit increase esp for one child more than offsets the loss of the personal exemption

Ok JD in tax law. I can't decipher how charitable contributions count next year. Are the above the line so I can still deduct. And count on top of the standard deduction.

I do not believe so.  Per an article from Chronicle of Philanthropy, it is not above the line.  Plenty of articles out there talking about this large standard deduction severely reducing number of taxpayers who will itemize and whether they marginally win or lose.  I've never itemized in my life, fortunately. 
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sol on November 02, 2017, 11:46:10 AM
Quote from: boa
this all looks to be great for mustachians so far.

I think this looks disastrous for us, because we have mortgages on our rental houses as well as our personal residence.    Anybody who owns multiple rentals is likely to get hit by both the cap on mortgage interest and the one on property tax deduction.

And since I live in a state with high property taxes (now with a capped deduction) but with no income tax (still fully deductible), I lose out on both ends.  They kept the SALT break I can't use, and reduced the one I need.

The third strike is the loss of deductibility of rental losses.  We had to rehab a trashed rental this year, so it stayed vacant while we put thousands into it this summer, and we'll lose money on the property this year.  If this tax plan passes, situations like this one suddenly get way more expensive.

As a landlord, why would I ever improve a property if I pay extra taxes for doing so? Or buy one, if my interest and taxes aren't deductible?  This whole plan seems to absolutely brutalize residential landlords.  So far, I hate it.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on November 02, 2017, 11:48:23 AM
The child and parent tax credit increase esp for one child more than offsets the loss of the personal exemption

Ok JD in tax law. I can't decipher how charitable contributions count next year. Are the above the line so I can still deduct. And count on top of the standard deduction.

I do not believe so.  Per an article from Chronicle of Philanthropy, it is not above the line.  Plenty of articles out there talking about this large standard deduction severely reducing number of taxpayers who will itemize and whether they marginally win or lose.  I've never itemized in my life, fortunately.

If they don't separate it this will greatly hurt charities.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CheapScholar on November 02, 2017, 11:48:38 AM
Can't believe they're proposing a standard deduction of $24,000 (married) and keeping the 401(k) pretax deduction where it is.

I think this is a real win for frugal upper middle class people like me.

Did...did you purposefully ignore the elimination of personal exemptions?  If you have kids and are taking those exemptions currently...poof.  Gone.  Suddenly, your standard deduction + exemptions NOW > deduction in new plan.

This plan absolutely screws low-income workers.  Instead of their first $9,525 of taxable income being taxed at 10%, it's taxed at 12%.  Anybody with $16,000 or less in taxable income ends up paying MORE under this proposal.

Only have one kid - don't care.  I'm a JD and took tax law - I'm confident this current version of the bill is a win for my family.  Will it have any significant change in my life?  No, but I'm sure feeling better about my wife and I keeping our 403(b) deductions!  People making less than 16K taxable need to seriously rethink their life decisions and go out and earn if you ask me.  Proud day to be a Republican.

2017 Standard Deduction + Personal Exemptions with 1 kid:

12,700 SD
4,050 x3 Personal Exemptions

Total: 24,850 deduction

How is losing $450 in baseline deductions a 'win'?

It's a win when you consider 403(b) stays and you plug in my family earnings into the new brackets.  Not to mention this bill will encourage economic growth, which I don't expect most people on this forum to believe but I am certainly bullish on America with this plan. 
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on November 02, 2017, 11:50:17 AM
Quote from: boa
this all looks to be great for mustachians so far.

I think this looks disastrous for us, because we have mortgages on our rental houses as well as our personal residence.    Anybody who owns multiple rentals is likely to get hit by both the cap on mortgage interest and the one on property tax deduction.

And since I live in a state with high property taxes (now with a capped deduction) but with no income tax (still fully deductible), I lose out on both ends.  They kept the SALT break I can't use, and reduced the one I need.

The third strike is the loss of deductibility of rental losses.  We had to rehab a trashed rental this year, so it stayed vacant while we put thousands into it this summer, and we'll lose money on the property this year.  If this tax plan passes, situations like this one suddenly get way more expensive.

As a landlord, why would I ever improve a property if I pay extra taxes for doing so? Or buy one, if my interest and taxes aren't deductible?  This whole plan seems to absolutely brutalize residential landlords.  So far, I hate it.

I'd say this affects a very small portion of mustachians. I did a poll a while ago and over 90% were 4% swr with vtsax or some index fund equivalent. Very few were real estate.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CheapScholar on November 02, 2017, 11:52:16 AM
The child and parent tax credit increase esp for one child more than offsets the loss of the personal exemption

Ok JD in tax law. I can't decipher how charitable contributions count next year. Are the above the line so I can still deduct. And count on top of the standard deduction.

I do not believe so.  Per an article from Chronicle of Philanthropy, it is not above the line.  Plenty of articles out there talking about this large standard deduction severely reducing number of taxpayers who will itemize and whether they marginally win or lose.  I've never itemized in my life, fortunately.

If they don't separate it this will greatly hurt charities.

You are correct, and honestly that is unfortunate.  I've posted on this board before that we need to increase tax incentives for all income levels to give to charity.  This bill also places a 1.4% tax on endowment earnings at wealthy universities, which I'm philosophical opposed to.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: ZiziPB on November 02, 2017, 11:54:14 AM
My summary:
Income:
Standard deductible: 12.2k (single) / 24.4k (married filing jointly)
12% bracket limit: 45k / 90k
25% bracket limit: 200k / 260k
35% bracket limit: 500k / 1MM
39.6% bracket limit: more

Capital Gains:
0% bracket limit: 38.6k / 77.2k
15% bracket limit: 425k / 479k
20% bracket limit: more
I'll ask again because I think it's important.  The new language makes it seem like these are not cumulative like before?  In other words, a FIREd individual could have up to $38,600 long term capital gains taxed at zero AND do a Roth conversion up to $45K at 12%?  If so, that is a huge.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sol on November 02, 2017, 11:55:18 AM
Quote from: boa
this all looks to be great for mustachians so far.

I think this looks disastrous for us, because we have mortgages on our rental houses as well as our personal residence.    Anybody who owns multiple rentals is likely to get hit by both the cap on mortgage interest and the one on property tax deduction.

And since I live in a state with high property taxes (now with a capped deduction) but with no income tax (still fully deductible), I lose out on both ends.  They kept the SALT break I can't use, and reduced the one I need.

The third strike is the loss of deductibility of rental losses.  We had to rehab a trashed rental this year, so it stayed vacant while we put thousands into it this summer, and we'll lose money on the property this year.  If this tax plan passes, situations like this one suddenly get way more expensive.

As a landlord, why would I ever improve a property if I pay extra taxes for doing so? Or buy one, if my interest and taxes aren't deductible?  This whole plan seems to absolutely brutalize residential landlords.  So far, I hate it.

I'd say this affects a very small portion of mustachians. I did a poll a while ago and over 90% were 4% swr with vtsax or some index fund equivalent. Very few were real estate.

Is this a thread about how the proposed plan affects other people, or about how it affects us?

I'm also primarily an index investor, but we do own two accidental rentals from moving without selling our old home.  I'm not anywhere near "primarily" real estate, but this plan would still cost me thousands per year in new taxes.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: DarkandStormy on November 02, 2017, 12:00:04 PM
Adds $1.51 trillion to the deficit.  "Fiscal" conservatives LMAO
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sherr on November 02, 2017, 12:00:43 PM
My summary:
Income:
Standard deductible: 12.2k (single) / 24.4k (married filing jointly)
12% bracket limit: 45k / 90k
25% bracket limit: 200k / 260k
35% bracket limit: 500k / 1MM
39.6% bracket limit: more

Capital Gains:
0% bracket limit: 38.6k / 77.2k
15% bracket limit: 425k / 479k
20% bracket limit: more
I'll ask again because I think it's important.  The new language makes it seem like these are not cumulative like before?  In other words, a FIREd individual could have up to $38,600 long term capital gains taxed at zero AND do a Roth conversion up to $45K at 12%?  If so, that is a huge.

They add together, now and before. So, ignoring the standard deduction:

You do a Roth conversion on $45k @ 12%, and then Capital Gains are taxed at 15%.
Or, you do a Roth conversion on $20k @ 12%, and then you can do $18.6k of Capital Gains at 0%.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: ZiziPB on November 02, 2017, 12:04:18 PM
If I were still working and making the money I'm making now next year and beyond, the change that would affect me most would be getting rid of AMT.  I've paid it for years and years.  It would be nice not having to worry about it.  Alas, I am now trying to figure out how these changes will affect me as an early retiree with significantly lower income...
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: bacchi on November 02, 2017, 12:04:53 PM
Quote from: boa
this all looks to be great for mustachians so far.

I think this looks disastrous for us, because we have mortgages on our rental houses as well as our personal residence.    Anybody who owns multiple rentals is likely to get hit by both the cap on mortgage interest and the one on property tax deduction.

And since I live in a state with high property taxes (now with a capped deduction) but with no income tax (still fully deductible), I lose out on both ends.  They kept the SALT break I can't use, and reduced the one I need.

The third strike is the loss of deductibility of rental losses.  We had to rehab a trashed rental this year, so it stayed vacant while we put thousands into it this summer, and we'll lose money on the property this year.  If this tax plan passes, situations like this one suddenly get way more expensive.

As a landlord, why would I ever improve a property if I pay extra taxes for doing so? Or buy one, if my interest and taxes aren't deductible?  This whole plan seems to absolutely brutalize residential landlords.  So far, I hate it.

I'd say this affects a very small portion of mustachians. I did a poll a while ago and over 90% were 4% swr with vtsax or some index fund equivalent. Very few were real estate.

Is this a thread about how the proposed plan affects other people, or about how it affects us?

I'm also primarily an index investor, but we do own two accidental rentals from moving without selling our old home.  I'm not anywhere near "primarily" real estate, but this plan would still cost me thousands per year in new taxes.

It's not at all clear that the rental mortgage deduction is capped. Rental expenses are not a Schedule A item, which is what this proposed law takes aim at.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Undecided on November 02, 2017, 12:13:38 PM
Can't believe they're proposing a standard deduction of $24,000 (married) and keeping the 401(k) pretax deduction where it is.

I think this is a real win for frugal upper middle class people like me.

To be fair, they are eliminating exemptions. So really its only a difference of 2700 off your taxable income. Not huge in my opinion.

Frugal upper-middle class people in some states will lose their biggest itemized deduction (state and local income taxes) and many will start to take the (much smaller) standard deduction, but then again many of them were already having that part of their deduction disregarded in the AMT, and perhaps already had their exemptions phased out anyway. Some will see some income shifted down to 35%, but other income shifted up to 35%. Sort of hard to generalize. And maybe it won’t even pass.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: SuperSecretName on November 02, 2017, 12:15:32 PM
seems like the loss of the 0% income tax bracket is a loss for those that FIRE and will do roth conversion.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: bacchi on November 02, 2017, 12:20:18 PM
seems like the loss of the 0% income tax bracket is a loss for those that FIRE and will do roth conversion.

Doesn't the increased standard deduction help hide capital gains income? Or am I misunderstanding that part of the plan?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: SuperSecretName on November 02, 2017, 12:21:00 PM
seems like the loss of the 0% income tax bracket is a loss for those that FIRE and will do roth conversion.

Doesn't the increased standard deduction help hide capital gains income? Or am I misunderstanding that part of the plan?
roth conversions count as income, not LTCG
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sherr on November 02, 2017, 12:23:29 PM
seems like the loss of the 0% income tax bracket is a loss for those that FIRE and will do roth conversion.

There never was a 0% tax bracket technically, there just sort-of-was for income <= the deductions. The standard deduction is increasing, so the "0%" bracket is actually getting larger.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Undecided on November 02, 2017, 12:24:22 PM

And since I live in a state with high property taxes (now with a capped deduction) but with no income tax (still fully deductible), I lose out on both ends.  They kept the SALT break I can't use, and reduced the one I need.
.

I don’t think that’s right (although I’ve only been reading the bill in snippets)—while it caps the state and local property tax deduction, it seems to entirely eliminate the state and local income tax deduction. So my guess is that a similarly situated Oregonian paying 8%+ state income taxes would lose much more in itemized deduction than a Washingtonian loses via the property tax cap.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CheapScholar on November 02, 2017, 12:25:14 PM
seems like the loss of the 0% income tax bracket is a loss for those that FIRE and will do roth conversion.

There never was a 0% tax bracket technically, there just sort-of-was for income <= the deductions. The standard deduction is increasing, so the "0%" bracket is actually getting larger.

But yet Republicans hate the poor.  Rable rable rable. 
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: SuperSecretName on November 02, 2017, 12:27:20 PM
seems like the loss of the 0% income tax bracket is a loss for those that FIRE and will do roth conversion.

There never was a 0% tax bracket technically, there just sort-of-was for income <= the deductions. The standard deduction is increasing, so the "0%" bracket is actually getting larger.
great point.  I knew I was missing something.

so for single, roth convert 12k, and cap gain 26.6k for all 0%.

This seems to be a slight improvement to the current tax system.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sunnyca on November 02, 2017, 12:36:22 PM
PTF
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sherr on November 02, 2017, 12:36:31 PM
seems like the loss of the 0% income tax bracket is a loss for those that FIRE and will do roth conversion.

There never was a 0% tax bracket technically, there just sort-of-was for income <= the deductions. The standard deduction is increasing, so the "0%" bracket is actually getting larger.

But yet Republicans hate the poor.  Rable rable rable.

You're not going to get any sympathy from me. I agree that this seems to be mostly-fine for the poor and middle class. I agree that this seems to be a return to "rational Republicanism", which I'm very glad to see after the "well we propagandised that Obamacare was terrible, so destroy it!" nonsense from earlier.

However it's also true that this is a huge give away for the very-rich. Repealing the AMT, repealing the estate tax (after 6 years), not repealing the deductions that the very-rich actually benefit off of (remember the "I will repeal the Carried Interest loophole" Trump?). This helps them much more than it helps us, and it is intended to.

And it will balloon the deficit (how could a tax-cut-for-everyone not?). And we all know that the next step in their grand plan is "Wow look how big the deficit is, we have to cut the entitlement spending from these crazy Democrats that are ruining the country!" We know because it has happened before. And they're repeating exactly the same process and just assuming that all their voters are too dumb to notice or too self-interested to care.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: ZiziPB on November 02, 2017, 12:37:20 PM
seems like the loss of the 0% income tax bracket is a loss for those that FIRE and will do roth conversion.

There never was a 0% tax bracket technically, there just sort-of-was for income <= the deductions. The standard deduction is increasing, so the "0%" bracket is actually getting larger.
great point.  I knew I was missing something.

so for single, roth convert 12k, and cap gain 26.6k for all 0%.

This seems to be a slight improvement to the current tax system.
I don't think so.  You could have more capital gains untaxed under the old system.
The old "up to 15%" meant $37,950 plus standard deduction and personal exemption, so effectively about $48,000 total before your capital gains would be taxable.  Now, all you get is $38,600. 

Unless that's $38,600 plus $12K standard deduction???
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sherr on November 02, 2017, 12:43:54 PM
seems like the loss of the 0% income tax bracket is a loss for those that FIRE and will do roth conversion.

There never was a 0% tax bracket technically, there just sort-of-was for income <= the deductions. The standard deduction is increasing, so the "0%" bracket is actually getting larger.
great point.  I knew I was missing something.

so for single, roth convert 12k, and cap gain 26.6k for all 0%.

This seems to be a slight improvement to the current tax system.
I don't think so.  You could have more capital gains untaxed under the old system.
The old "up to 15%" meant $37,950 plus standard deduction and personal exemption, so effectively about $48,000 total before your capital gains would be taxable.  Now, all you get is $38,600. 

Unless that's $38,600 plus $12K standard deduction???

Plus. So it's pretty similar, $48k before, $50.6k now.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Undecided on November 02, 2017, 12:52:06 PM
seems like the loss of the 0% income tax bracket is a loss for those that FIRE and will do roth conversion.

There never was a 0% tax bracket technically, there just sort-of-was for income <= the deductions. The standard deduction is increasing, so the "0%" bracket is actually getting larger.

But yet Republicans hate the poor.  Rable rable rable.

You're not going to get any sympathy from me. I agree that this seems to be mostly-fine for the poor and middle class. I agree that this seems to be a return to "rational Republicanism", which I'm very glad to see after the "well we propagandised that Obamacare was terrible, so destroy it!" nonsense from earlier.

However it's also true that this is a huge give away for the very-rich. Repealing the AMT, repealing the estate tax (after 6 years), not repealing the deductions that the very-rich actually benefit off of (remember the "I will repeal the Carried Interest loophole" Trump?). This helps them much more than it helps us, and it is intended to.

And it will balloon the deficit (how could a tax-cut-for-everyone not?). And we all know that the next step in their grand plan is "Wow look how big the deficit is, we have to cut the entitlement spending from these crazy Democrats that are ruining the country!" We know because it has happened before. And they're repeating exactly the same process and just assuming that all their voters are too dumb to notice or too self-interested to care.

I doubt that the repeal of the AMT has much meaning to the very rich, if that means people with massive assets and the associated qualified dividend- and capital gains-driven incomes. It has some meaning to people with large wage incomes (although few that crack “the 1%”), but playing with the rates and brackets, and eliminating the state income tax deduction (considering how many of them are in high-tax CA, NY, NJ, MA and IL) means many of them are the ones paying for others’ cuts.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Inaya on November 02, 2017, 01:09:54 PM
seems like the loss of the 0% income tax bracket is a loss for those that FIRE and will do roth conversion.

There never was a 0% tax bracket technically, there just sort-of-was for income <= the deductions. The standard deduction is increasing, so the "0%" bracket is actually getting larger.

But yet Republicans hate the poor.  Rable rable rable.

You're not going to get any sympathy from me. I agree that this seems to be mostly-fine for the poor and middle class. I agree that this seems to be a return to "rational Republicanism", which I'm very glad to see after the "well we propagandised that Obamacare was terrible, so destroy it!" nonsense from earlier.

However it's also true that this is a huge give away for the very-rich. Repealing the AMT, repealing the estate tax (after 6 years), not repealing the deductions that the very-rich actually benefit off of (remember the "I will repeal the Carried Interest loophole" Trump?). This helps them much more than it helps us, and it is intended to.

And it will balloon the deficit (how could a tax-cut-for-everyone not?). And we all know that the next step in their grand plan is "Wow look how big the deficit is, we have to cut the entitlement spending from these crazy Democrats that are ruining the country!" We know because it has happened before. And they're repeating exactly the same process and just assuming that all their voters are too dumb to notice or too self-interested to care.

I doubt that the repeal of the AMT has much meaning to the very rich, if that means people with massive assets and the associated qualified dividend- and capital gains-driven incomes. It has some meaning to people with large wage incomes (although few that crack “the 1%”), but playing with the rates and brackets, and eliminating the state income tax deduction (considering how many of them are in high-tax CA, NY, NJ, MA and IL) means many of them are the ones paying for others’ cuts.
So this is basically Blue states paying for Red states yet again? Or am I misunderstanding?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on November 02, 2017, 01:14:32 PM
where was state income tax done away with.  i saw property tax deductions capped at 10k but i saw nothing about eliminating state and local income deductions unless it was just  a delete this paragraph line item.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sherr on November 02, 2017, 01:24:03 PM
So this is basically Blue states paying for Red states yet again? Or am I misunderstanding?

You are not misunderstanding. That was a "feature" of the Cassidy-Graham Obamacare replacement too.

"Well who knows why, but these blue states seem to get way more federal dollars than red states and I think that's unfair!" - Lindsey Graham
(Hint, blue states expanded Medicaid. Red states could do that too.)
https://slate.com/business/2017/09/lindsey-graham-and-bill-cassidy-have-a-really-bad-excuse-for-taking-money-from-blue-states.html

Of course in general Democratic states will tend to subsidize Republican states, since Democratic states tend to be rich and get richer and Republican states tend to be poor and get poorer. But yes they are very intentionally trying to accelerate the process.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: dandarc on November 02, 2017, 01:29:57 PM
where was state income tax done away with.  i saw property tax deductions capped at 10k but i saw nothing about eliminating state and local income deductions unless it was just  a delete this paragraph line item.
I think it is on pages 104 / 105 of the bill text.

Quote
‘‘(D) subsection (a)(3) shall not apply to
4 State and local taxes.’’.

Section 164(a)(3) is the deduction for state, local, and foreign income taxes.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: NextTime on November 02, 2017, 01:36:42 PM
So basically a family with 2 children taking the standard deduction will come out $3,100 worse off with this plan? 

Is my math correct?

Currently:
Std Deduction = $12,700
Personal Exemptions = 4(4050) = $16,200
Child Tax Credit = 2(1000) = $2,000
Total = $30,900

Proposed:
Std Deduction = $24,000
Child Tax Credit = 2(1600) = $3200
Family Tax Credit = 2(300) = $600
Total = $27,800

Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: ZiziPB on November 02, 2017, 01:42:34 PM
So basically a family with 2 children taking the standard deduction will come out $3,100 worse off with this plan? 

Is my math correct?

Currently:
Std Deduction = $12,700
Personal Exemptions = 4(4050) = $16,200
Child Tax Credit = 2(1000) = $2,000
Total = $30,900

Proposed:
Std Deduction = $24,000
Child Tax Credit = 2(1600) = $3200
Family Tax Credit = 2(300) = $600
Total = $27,800
You are conflating deductions with tax credits.  You can't add the two together.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Undecided on November 02, 2017, 01:42:45 PM
So this is basically Blue states paying for Red states yet again? Or am I misunderstanding?

You are not misunderstanding. That was a "feature" of the Cassidy-Graham Obamacare replacement too.

"Well who knows why, but these blue states seem to get way more federal dollars than red states and I think that's unfair!" - Lindsey Graham
(Hint, blue states expanded Medicaid. Red states could do that too.)
https://slate.com/business/2017/09/lindsey-graham-and-bill-cassidy-have-a-really-bad-excuse-for-taking-money-from-blue-states.html

Of course in general Democratic states will tend to subsidize Republican states, since Democratic states tend to be rich and get richer and Republican states tend to be poor and get poorer. But yes they are very intentionally trying to accelerate the process.

Well, it's high-income wage earners in those states, mostly, rather than everyone. Equally-high-income business owners are essentially restored or made better off by capping their business income at 25%.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on November 02, 2017, 01:42:54 PM
So basically a family with 2 children taking the standard deduction will come out $3,100 worse off with this plan? 

Is my math correct?

Currently:
Std Deduction = $12,700
Personal Exemptions = 4(4050) = $16,200
Child Tax Credit = 2(1000) = $2,000
Total = $30,900

Proposed:
Std Deduction = $24,000
Child Tax Credit = 2(1600) = $3200
Family Tax Credit = 2(300) = $600
Total = $27,800



incorrect b/c the credit are credits not deductions.  so it depends on the bracket you're in for the tax credits to be depicted properly but a 25% bracketeer would see 3800/.25 return or 15200 should be added to the bottom line not just 3800

and the 2000 from the top would be 2000/.25 or 8k

if you take the standard deductions you came out ahead here. if you itemized you may have lost

So original should be 36900

Proposed will be 39200 in the 25% bracket as the top end of your income.  if youre in the 12% that gap gets wider.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: NextTime on November 02, 2017, 01:51:22 PM
So basically a family with 2 children taking the standard deduction will come out $3,100 worse off with this plan? 

Is my math correct?

Currently:
Std Deduction = $12,700
Personal Exemptions = 4(4050) = $16,200
Child Tax Credit = 2(1000) = $2,000
Total = $30,900

Proposed:
Std Deduction = $24,000
Child Tax Credit = 2(1600) = $3200
Family Tax Credit = 2(300) = $600
Total = $27,800



incorrect b/c the credit are credits not deductions.  so it depends on the bracket you're in for the tax credits to be depicted properly but a 25% bracketeer would see 3800/.25 return or 15200 should be added to the bottom line not just 3800

and the 2000 from the top would be 2000/.25 or 8k

if you take the standard deductions you came out ahead here. if you itemized you may have lost

So original should be 36900

Proposed will be 39200 in the 25% bracket as the top end of your income.  if youre in the 12% that gap gets wider.


Thanks Boarder.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: ZiziPB on November 02, 2017, 01:52:03 PM
Now that we know the details in this bill, anyone care to speculate on the chances of its passing?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: dandarc on November 02, 2017, 01:55:06 PM
Now that we know the details in this bill, anyone care to speculate on the chances of its passing?
They might be re-writing it this weekend, so not sure how many details we actually have.  I'd bet even the folks who wrote the bill don't think this will pass.  "Well, we tried to pass tax cuts for damn near everyone, but those darn democrats blocked it in the senate!" might be all the republicans want / need out of this bill.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: DarkandStormy on November 02, 2017, 02:01:35 PM
Section 1204 - axes the student loan deduction (+$47.5 billion for the govt. over 10 years).

Section 1601 - the govt. loses $127b in revenue by doubling the exemption for estate transfers (from $5m to $10m).

Section 3001 - dropping the corporate rate to a flat 20% costs the U.S. $1.5 trillion over 10 years.

Republicans cannot claim to be fiscal conservatives any longer.  It's a lie.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sherr on November 02, 2017, 02:16:44 PM
Now that we know the details in this bill, anyone care to speculate on the chances of its passing?

I think it's probably still pretty low, but close. I think if they just left the estate tax alone and maybe one other thing, add back in the AMT or strike the Carried Interest tax for example, that their chances would be a lot better.

On the other hand I think the Republicans need to do something or they're going to get killed in the midterms, and I think they think that too, so I would not be surprised if they pass it as-is.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Undecided on November 02, 2017, 02:19:34 PM
Now that we know the details in this bill, anyone care to speculate on the chances of its passing?

I think it's probably still pretty low, but close. I think if they just left the estate tax alone and maybe one other thing, add back in the AMT or strike the Carried Interest tax for example, that their chances would be a lot better.

On the other hand I think the Republicans need to do something or they're going to get killed in the midterms, and I think they think that too, so I would not be surprised if they pass it as-is.

I don't know the numbers, but if they eliminate the state income tax deduction, I doubt many would pay significant AMT.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: maizefolk on November 02, 2017, 03:09:59 PM
So basically a family with 2 children taking the standard deduction will come out $3,100 worse off with this plan? 

Is my math correct?

Currently:
Std Deduction = $12,700
Personal Exemptions = 4(4050) = $16,200
Child Tax Credit = 2(1000) = $2,000
Total = $30,900

Proposed:
Std Deduction = $24,000
Child Tax Credit = 2(1600) = $3200
Family Tax Credit = 2(300) = $600
Total = $27,800



incorrect b/c the credit are credits not deductions.  so it depends on the bracket you're in for the tax credits to be depicted properly but a 25% bracketeer would see 3800/.25 return or 15200 should be added to the bottom line not just 3800

and the 2000 from the top would be 2000/.25 or 8k

if you take the standard deductions you came out ahead here. if you itemized you may have lost

So original should be 36900

Proposed will be 39200 in the 25% bracket as the top end of your income.  if youre in the 12% that gap gets wider.

Yup. A deduction like the personal exemption is worth more for people in high marginal tax brackets than for people in low marginal tax brackets. A credit is equally valuable to both.

The net effect for a family of 4 is a loss of $4,900 of tax deduction/exemption and a gain of $1,800 in tax credits. So it's a net win for families of four with marginal tax rates below (1,800/4,900) = 36.7% (so given the new proposed tax brackets couples with taxable income of less than $1M/year).

This part of the bill (in isolation) actually makes the tax code more progressive, not less.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sokoloff on November 02, 2017, 03:45:40 PM
Republicans cannot claim to be fiscal conservatives any longer.  It's a lie.
I don't think either major party is fiscally conservative, but I thought the GOP brand of conservativeness was more centered around a government as small as feasible (though they fail to follow through on this as well, but I thought that was the main tenet of their conservatism).
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: TexasRunner on November 02, 2017, 04:17:17 PM
I'm personally glad they are slashing the mortgage deduction.

Its still 500K.  No reason in my opinion to subsidize an excessive lifestyle.
Whether or not a fixed mortgage value is "excessive lifestyle" or not depends very much on the local cost of living, IMO. The median single-family house sales price (http://realestate.boston.com/buying/2016/06/17/cambridge-most-expensive-home-prices/) in my town hit $1.675MM last year.

Having trouble believing that on a forum about living frugally we are seriously having a discussion about whether a 1 million dollar home is excessive living or not.  What about a 500,000$ lambo?  What about a 15,000$ cappuccino maker? 

Sure I get that there are HCOL areas, but don't become whiney-pants about not getting a mortgage interest deduction for the second half of your million dollar home.  There are reasonable ways to live in every city (Except possibly the Bay Area, which may be its own basket of problems).

Oh how I wish we could return to the days of facepunching.  Whilst a noob and a lurker I was, dispencing facepunch worthy statements would not go unnoticed by many....

:p
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sokoloff on November 02, 2017, 04:24:13 PM
Sure I get that there are HCOL areas, but don't become whiney-pants about not getting a mortgage interest deduction for the second half of your million dollar home.
Not being whiny-pants about it personally; if that passes, I'll probably just pay the mortgage down to $500K and move along with my life. (Edit: looks like existing mortgages are grandfathered in, so I won't need to act)

My point is that I don't find that buying a median SFH in a town as evidence of excessive living (in fact, I think buying at the median is prima facie evidence against it being excessive).
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: by_1008 on November 02, 2017, 04:33:08 PM
Two other pieces I've noticed that I'm not too happy about:

-Repeal of the electric vehicle tax credit (though it was probably not long for this world anyway)

-Repeal of the lifetime learning credit. I was planning to take advantage of this next year for graduate school. It's a bit hard to decipher if this "expanded AOTC" would apply in a similar fashion for graduate school. My understanding was that the current AOTC only applies to undergraduate degrees?

I suppose everyone is going to have their own personal credit or deduction that they lose. But so far my impression is that these changes are much more likely to hit the average person, whereas the wealthy are in good shape due to the higher movement of the tax brackets.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: TexasRunner on November 02, 2017, 05:05:02 PM
Quote from: sokoloff link=topic=80523.msg1756926#msg1756926
My point is that I don't find that buying a median SFH in a town as evidence of excessive living (in fact, I think buying at the median is prima facie evidence against it being excessive).

So you do not think the average American is living excessively....?
Do you realize the volume of dept the average American has....?
Being 'Median' is in and of itself excessive living in our country. 

But that is enough thread-jacking and I get your point.  :)

Running my numbers, the following applies:

1) My mortgage is below 500k therefore no change in deduction
2) Texas has no state-level income tax so no loss to me (And why am I helping pay other State's taxes again...?)
3) 5 people in household resulted in 20250$ standard deduction which shall now be 24,000 for my spouse and I = 3750$ Higher deduction (roughly 560$ @ 15% rate)
4) Child credit went up from 1000 to 1600 so 3*1600 - 3*1000 = 1800$ credit.
5) Capital gains will be zero for me (not selling anyways but that's exciting for a FIRE'd individual).
6) I lose the student dept reduction but I don't think subsidizing debt is ever a good thing on the individual level.

Overall, my family gains 2360$ on the new system.  Not a bad gain.


The much MUCH bigger deal is that I work for a S-Corp (Family owned and about 1mil to 5mil gains every year...)  They will almost certainly be included in the capped tax rate of 25%, which results in 200k - 600k staying in the business!
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Undecided on November 02, 2017, 05:45:57 PM

2) Texas has no state-level income tax so no loss to me (And why am I helping pay other State's taxes again...?)


Keeping the property tax deduction, but capping it, is brilliant for Republicans, in that it makes residents of states that choose to fund through income taxes (I'll call those "Blue States") pay for states that choose to fund through property taxes (I'll call those "Red States"), while further punishing those in the Blue States that live in the highest cost of living areas (I'll call those "Coastal Elites"). Never mind that CA, NY, MA and NJ were already among the states where residents most heavily subsidize the rest of the country.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: TexasRunner on November 02, 2017, 06:12:59 PM

2) Texas has no state-level income tax so no loss to me (And why am I helping pay other State's taxes again...?)


Keeping the property tax deduction, but capping it, is brilliant for Republicans, in that it makes residents of states that choose to fund through income taxes (I'll call those "Blue States") pay for states that choose to fund through property taxes (I'll call those "Red States"), while further punishing those in the Blue States that live in the highest cost of living areas (I'll call those "Coastal Elites"). Never mind that CA, NY, MA and NJ were already among the states where residents most heavily subsidize the rest of the country.

Still not convinced that this is factually accurate once you remove social security and medicare benefits (because its common for people to retire to Red states) and military bases (which are more concentrated in the southern half of the continental US.

But sure, wage it as class warfare.  Be careful, though, as class warfare is exactly what a significant percentage of the democratic base wants (Occupy Wall Street, Anyone?...)

Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: TempusFugit on November 02, 2017, 06:37:32 PM
I'm not going to claim that I've reviewed this proposal in any detail or that I'm especially knowledgeable about tax law or the impact on various income groups.  I don't know the ultimate fiscal impact, other than that it seems to add an inexcusable amount to the already obnoxious deficit. In the long term this could have dramatic inflationary consequences.   Especially if the future government decides that the only way to pay off the deficit is to inflate it away. 

I think neither party is fiscally responsible because the general electorate is not fiscally responsible.   People want both more spending and more tax cuts.  People want something today that they (or someone else) can pay for later.  People (large groups) are not rational.  I mean, we elected Donald Freaking Trump as President.  How rational is that?  Why would our politicians be any more rational?  Because the learned and contemplative populace will listen to reason and logic? Hah.  Some of us might calmly consider this complex subject, or we think we might until our own biases are tested. But those other guys, please.

On a few of the proposed line items, I have a first pass takeaway on the principle of it, in my opinion.

Mortgage interest deduction - this was always a benefit skewed toward wealthier people.  While I can see a societal benefit to stable neighborhoods, and therefore to encouraging home ownership, there should be some limit. It has always made sense to me to cap that deduction at some reasonable level, whether regarding multiple homes or the value of the mortgage or a combination of both.  This seems like a reasonable proposal to me.  I haven't seen any note on inflation indexing for this, so it might be something that eventually disappears entirely due to the inflationary effects on home prices.  The HCOL areas may find that this actually helps constrain those prices a little. The concern about rental properties is something I'm not sure is legit. Wouldn't the interest still be an offset to business income in that case? Just like any other expense related to running a business that reduces net profit? I'm no accountant, so maybe that's off base.

401K limits - again something that is effectively benefiting wealthier people.  It probably should have been reduced, though not so far as that 2400 figure.  This is one of those things where we have to reduce deductions someplace. This probably wouldn't actually affect that many people, considering how few contribute anything near the max.  Remember that the guy (or gal) trying to support a family on 30k probably considers the Mustachian with a 500k IRA to be filthy rich.  It's all relative.  But this was politically untenable from the beginning because even people who don't take advantage would like to think they might.

Estate tax - I think the tax is morally wrong.  Why should the government tax you for dying?  Didn't they tax your income while you were alive?  Didn't they tax your spending when you were alive?  Didn't they tax your property when you were alive?  Why do they get another bite just because the reaper visited?  Because it's a convenient bucket of money for the rest of us?  Because we can rationalize that it's only super mega rich that have to pay it?  Seems wrong to me. 

State income tax deduction -  I think this deduction has had a diluting effect on the accountability of state governments. Why should the rest of the nation's taxpayers subsidize California or New York or Illinois bad government? We have our own bad governments to deal with, thanks.  If the citizenry of NY doesn't want to pay for the services that NY is providing, then maybe those taxes will be lower.  That said, property taxes are the same thing, and I'd expect a move toward more property taxes in these states, if this becomes law. 

The corp tax rate to 20% -  I see the argument for reducing the rate from 35%.  I have friends who own small businesses and this is a real killer.  It isn't just the mega corp with offshore tax havens we should consider.  That said, do we really need to reduce it to 20% at the expense of ballooning the deficit?  Can we maybe go with 27%?  Combine this with eliminating all the (corp tax) loopholes and make it perhaps close to revenue neutral?

Charitable deduction - yes I agree that this will affect charitable giving. But doesn't anyone else sometimes feel just a little bit that the deduction kind of tarnishes the act of giving?  Should we really be looking for a deduction for our good deed?  The effect will be regrettable and so from that perspective it is maybe a bad idea. The US is the most charitable society on the planet.  I'd hate for that to change.

The real shame is that we truly do need tax reform.  Simplify the dang thing.  It would make it much easier to then argue about how much government we want to pay for.

Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: maizefolk on November 02, 2017, 06:52:23 PM
Estate tax - I think the tax is morally wrong.  Why should the government tax you for dying?  Didn't they tax your income while you were alive?  Didn't they tax your spending when you were alive?  Didn't they tax your property when you were alive?  Why do they get another bite just because the reaper visited?  Because it's a convenient bucket of money for the rest of us?  Because we can rationalize that it's only super mega rich that have to pay it?  Seems wrong to me. 

Counterpoint: In a deficit/spending/revenue neutral world, eliminating the estate tax means that taxes on the living would need to go up to compensate.

I would happily pay the government more money over my dead body in exchange for paying a bit less money to them while I am still alive.

In fact, of all the times in my life I could pay tax to the government, doing so when I'm dead seems like absolute least disruptive to my freedom and pursuit of happiness as a human being.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Undecided on November 02, 2017, 06:54:58 PM

2) Texas has no state-level income tax so no loss to me (And why am I helping pay other State's taxes again...?)


Keeping the property tax deduction, but capping it, is brilliant for Republicans, in that it makes residents of states that choose to fund through income taxes (I'll call those "Blue States") pay for states that choose to fund through property taxes (I'll call those "Red States"), while further punishing those in the Blue States that live in the highest cost of living areas (I'll call those "Coastal Elites"). Never mind that CA, NY, MA and NJ were already among the states where residents most heavily subsidize the rest of the country.

Still not convinced that this is factually accurate once you remove social security and medicare benefits (because its common for people to retire to Red states) and military bases (which are more concentrated in the southern half of the continental US.

But sure, wage it as class warfare.  Be careful, though, as class warfare is exactly what a significant percentage of the democratic base wants (Occupy Wall Street, Anyone?...)

Sure, now it's all one country, and people are mobile within it, with spending for our common good. But before it was "why am I helping pay other State's taxes again?" States pay for their own operation somehow (with more or less help from the federal budget), and the deductions for the three major options (property, income and sales taxes, where you could pick either of the last two) never struck me as obviously conceptually tilting toward one "type" of state. Offering a deduction for only one of those actually seems like it has a much greater effect in favor of the states that most heavily rely on property taxes vs. the other two, favoring a more regressive state funding mechanism than income taxes.

I don't know if it's "class" warfare, vs. warfare along other cultural divides, though. I always assumed that the "Occupy" type stuff was so much more popular in the working class in the Blue States than in the Red States as to swamp class alone as the major factor in who went in for it.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: maizefolk on November 02, 2017, 07:01:04 PM
From my experiences back then the Occupy folks were a mixture of the non-working poor, and underemployed college educated graduates, neither of which would really use the label "working class" but both of which were quite common in both red and blue states at the time.

My question is, if the tax reform passes, will this drive a shift towards more states raising more of their revenue through property taxes rather than income taxes? (Since less of the money comes out of their residents pockets and more comes out of their residents' federal tax returns). Still trying to work through that the second order effects of a general increase in property taxes across the country would be... (although potentially offset by a decrease in state income taxes).
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sol on November 02, 2017, 07:11:47 PM
This part of the bill (in isolation) actually makes the tax code more progressive, not less.

Good thing you're not looking at the rest then.  Just as a quick example, the bill would also repeal FSAs and immediately subject an extra $5k of my income to taxation at my marginal rate.  That more than washes out any possible savings.

In my case, last year we had about $32k in deductions and exemptions.  Next year we would be forced into the 24k standard deduction and get no exemptions, so that's 8k of extra income that gets taxed right up front.  Plus 5k for the loss of the FSA.  I start out with 13k of extra taxable income in the 25% bracket, for a loss of over $3,000.

On the bright side, the newly increased child tax credit has a higher phase out and a higher value, so that saves me about $10k over this year's version because I have kids and am currently subject to the income phase out.  And our straight marginal rate would drop a little and the brackets are moved, so those would saves me some too.  Overall I think we'll pay more but it would be within a thousand dollars of what we currently pay, based on less than hour of reading.

And that's why I think it might actually pass.  Just like their shitty health care plan, this tax plan is a huge gift to the richest Americans.  Unlike their shitty health care plan, the new tax plan doesn't totally screw over middle class Americans (it screws over the deficit instead).  Health care failed because thousands of republican voters called their reps and said "your shitty plan sucks" and I don't think those same people are going to object quite so violently to this tax plan.  It's certainly not anywhere as good for them as it is for super rich people, but it's not totally going to fuck with most Americans either.  Without that middle class outrage, Congress might find a way to squeeze it through.

Personally, I wouldn't even mind paying higher taxes if my contribution was being used to reduce the deficit.  I'm not so thrilled about paying higher taxes so that billionaires can pay lower taxes, though.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: TempusFugit on November 02, 2017, 07:18:36 PM
Estate tax - I think the tax is morally wrong.  Why should the government tax you for dying?  Didn't they tax your income while you were alive?  Didn't they tax your spending when you were alive?  Didn't they tax your property when you were alive?  Why do they get another bite just because the reaper visited?  Because it's a convenient bucket of money for the rest of us?  Because we can rationalize that it's only super mega rich that have to pay it?  Seems wrong to me. 

Counterpoint: In a deficit/spending/revenue neutral world, eliminating the estate tax means that taxes on the living would need to go up to compensate.

I would happily pay the government more money over my dead body in exchange for paying a bit less money to them while I am still alive.

In fact, of all the times in my life I could pay tax to the government, doing so when I'm dead seems like absolute least disruptive to my freedom and pursuit of happiness as a human being.

That's certainly a valid point.  But I'm considering it in the context of the family (heirs) not the individual.  If this were only a world of single childless people, then there would be no moral reason the society (read government) shouldn't get a big chunk.   Of course it would be a moot point in that case :-)
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: maizefolk on November 02, 2017, 07:28:40 PM
This part of the bill (in isolation) actually makes the tax code more progressive, not less.

Good thing you're not looking at the rest then.  Just as a quick example, the bill would also repeal FSAs and immediately subject an extra $5k of my income to taxation at my marginal rate.  That more than washes out any possible savings.

Absolutely people should look at the whole bill. But I like to take a reductionist approach and understand how each (largely unrelated) piece of the time will work in isolation.

For example, if I understand the new passthrough income tax rate correctly, it's actively going to raise taxes on a lot of small "mom and pop" businesses bringing in less than $90,000 in net profits, while cutting taxes for much wealthier business owners.

Eliminating the estate tax, is definitely a big cut for the wealthy (at the absolute most convenient time in your life to pay taxes, after you're already dead), and while it doesn't actively increase taxes for lower income folks, it has the net effect of shifting more of the total tax burden on to them (and at the much less convenient time of when you're still alive and could put that money to use in other ways).

To reiterate, I'm not arguing to the republican tax plan. Just trying to understand the effects of different pieces of it. And until today, I at least hadn't made the connection that trading deductions for credits (in a net revenue neutral fashion) has the effect of making an overall tax code more progressive.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: aspiringnomad on November 02, 2017, 07:29:34 PM
Estate tax - I think the tax is morally wrong.  Why should the government tax you for dying?  Didn't they tax your income while you were alive?  Didn't they tax your spending when you were alive?  Didn't they tax your property when you were alive?  Why do they get another bite just because the reaper visited?  Because it's a convenient bucket of money for the rest of us?  Because we can rationalize that it's only super mega rich that have to pay it?  Seems wrong to me. 

Counterpoint: In a deficit/spending/revenue neutral world, eliminating the estate tax means that taxes on the living would need to go up to compensate.

I would happily pay the government more money over my dead body in exchange for paying a bit less money to them while I am still alive.

In fact, of all the times in my life I could pay tax to the government, doing so when I'm dead seems like absolute least disruptive to my freedom and pursuit of happiness as a human being.

Yep, pragmatic economists of both political persuasions tend to agree that estate taxes are the best taxes to the extent that you care about not distorting decisions (you don't avoid death to avoid paying taxes) and building a meritocracy (that one should be obvious).
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: DavidAnnArbor on November 02, 2017, 07:31:00 PM
Estate tax - I think the tax is morally wrong.  Why should the government tax you for dying?  Didn't they tax your income while you were alive?  Didn't they tax your spending when you were alive?  Didn't they tax your property when you were alive?  Why do they get another bite just because the reaper visited?  Because it's a convenient bucket of money for the rest of us?  Because we can rationalize that it's only super mega rich that have to pay it?  Seems wrong to me. 

Counterpoint: In a deficit/spending/revenue neutral world, eliminating the estate tax means that taxes on the living would need to go up to compensate.

I would happily pay the government more money over my dead body in exchange for paying a bit less money to them while I am still alive.

In fact, of all the times in my life I could pay tax to the government, doing so when I'm dead seems like absolute least disruptive to my freedom and pursuit of happiness as a human being.

That's certainly a valid point.  But I'm considering it in the context of the family (heirs) not the individual.  If this were only a world of single childless people, then there would be no moral reason the society (read government) shouldn't get a big chunk.   Of course it would be a moot point in that case :-)

The richest of the rich inherit stock from their ancestors.
Consider the Coors family, that owned the Coors beer company. The family would hand down stock ownership through the generations. The stock could appreciate significantly in value. The family never paid any ordinary income tax rates from the dividends from owning the stock.  Finally, an estate tax would be the mechanism by which the inheritances could be taxed, making up for the fact that these Coors family members paid taxes at a lower rate throughout their lives because qualified dividends are taxed lower.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sokoloff on November 02, 2017, 07:43:50 PM
Yep, pragmatic economists of both political persuasions tend to agree that estate taxes are the best taxes to the extent that you care about not distorting decisions (you don't avoid death to avoid paying taxes) and building a meritocracy (that one should be obvious).
It causes distortions while people are alive. Trust and estate planning lawyers love the estate tax; it drives a lot of business.

Our family doesn't have (nearly) enough money to worry about the current $11-ish MM estate limit, but because we're mid-40s now, many of our cFIREsim scenarios do have us ending with more than that, so we have incentives while we're middle-aged to begin transferring some of that wealth into vehicles that will allow portions of that to escape the estate tax (so the growth occurs in those vehicles rather than in our estate). But, because we're "only" just barely millionaires, with a lot of our net worth locked up in equity in our primary residence, we have other cFIREsim scenarios that are on the meager side if we now transfer too much of that wealth outside of our means to access.

So, for all this, we enrich trust and estate planning people who are able to help us, meaning the estate tax absolutely causes distortions (basically, causes a whole industry to exist in substantially larger form than otherwise) versus "keep it all normally managed, ensure you don't run out, make a will to dictate your distribution to charities, offspring, and other family members only upon death".
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: maizefolk on November 02, 2017, 07:48:21 PM
Estate tax - I think the tax is morally wrong.  Why should the government tax you for dying?  Didn't they tax your income while you were alive?  Didn't they tax your spending when you were alive?  Didn't they tax your property when you were alive?  Why do they get another bite just because the reaper visited?  Because it's a convenient bucket of money for the rest of us?  Because we can rationalize that it's only super mega rich that have to pay it?  Seems wrong to me. 

Counterpoint: In a deficit/spending/revenue neutral world, eliminating the estate tax means that taxes on the living would need to go up to compensate.

I would happily pay the government more money over my dead body in exchange for paying a bit less money to them while I am still alive.

In fact, of all the times in my life I could pay tax to the government, doing so when I'm dead seems like absolute least disruptive to my freedom and pursuit of happiness as a human being.

That's certainly a valid point.  But I'm considering it in the context of the family (heirs) not the individual.  If this were only a world of single childless people, then there would be no moral reason the society (read government) shouldn't get a big chunk.   Of course it would be a moot point in that case :-)

Well the perspective of the heirs is certainly also a valid one.* From the perspective of an heir, they have never paid income tax, or property tax on their inheritance (unlike your perspective in your first post on the subject). It's brand new money that (even if they were the sort of person who counts on an inheritance from their parents) no one was under any obligation to provide to them. Sure it would be nicer if they didn't have to pay tax (that's true of any single tax you care to name, from property to income to sales to a crack tax (http://www.npr.org/templates/story/story.php?storyId=6861075)), but in a word where a certain amount of money needs to be raised to pay for the federal government** what other tax on the living would you propose to raise so that heirs could inherit their parents' net worth tax free?***

*Personally I've made it a point to design my life in such a way that I'll never be expecting or counting on any inheritance from my folks, because I don't ever want to be in the position of being in my 70s and bitter than my parents are still alive and enjoying the crap out of life at 100. But let's put that aside.

**Which is perhaps not the world our congress lives in, since this tax cut would cost an extra $1.5 trillion in deficit spending. But again, that's a distraction.

***And I'm sure you can come up with lots of places we could cut federal spending instead, but remember those spending cuts could just as easily be applied to reducing taxes on the living, so for the purposes of this hypothetical assume we've already cut all the federal spending you think we could do without, and used it to reduce property, and income, and sales taxes all over the country.

Estate tax - I think the tax is morally wrong.  Why should the government tax you for dying?  Didn't they tax your income while you were alive?  Didn't they tax your spending when you were alive?  Didn't they tax your property when you were alive?  Why do they get another bite just because the reaper visited?  Because it's a convenient bucket of money for the rest of us?  Because we can rationalize that it's only super mega rich that have to pay it?  Seems wrong to me. 

Counterpoint: In a deficit/spending/revenue neutral world, eliminating the estate tax means that taxes on the living would need to go up to compensate.

I would happily pay the government more money over my dead body in exchange for paying a bit less money to them while I am still alive.

In fact, of all the times in my life I could pay tax to the government, doing so when I'm dead seems like absolute least disruptive to my freedom and pursuit of happiness as a human being.

Yep, pragmatic economists of both political persuasions tend to agree that estate taxes are the best taxes to the extent that you care about not distorting decisions (you don't avoid death to avoid paying taxes) and building a meritocracy (that one should be obvious).

Hahahahaha. Certainly an important point. However the reverse is not true. I've heard rumors that there was an uptick in the number of deaths by extremely elderly, extremely wealthy individuals in 2010 (the only year since 1916 where there was no estate tax, with everyone knowing the tax was coming back in 2011), although I don't know that anyone has done an actual study. Certainly adds a new more ominous connotation to "tax avoidance strategies."
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sol on November 02, 2017, 07:54:18 PM
until today, I at least hadn't made the connection that trading deductions for credits (in a net revenue neutral fashion) has the effect of making an overall tax code more progressive.

My wife made the point to me early today that even your observation here isn't quite what it seems, because the lowest income people don't pay taxes anyway.  Sure, part of this new tax plan would make taxes more progressive for people earning more than about the median income and less than the top 10%, but it offers huge breaks to the top 10% and it offers nothing at all to the bottom ~half of earners (because they already pay zero).  It's not really progressive because it doesn't penalize the rich more than the poor, it instead rewards the rich and does nothing for the poor (and penalizes the middle).

Which is what we've been saying here all along: Republicans want to tax middle to upper-middle class Americans to give tax breaks to the very richest Americans.  They can't tax anyone else, because poor people just don't have enough money that you can take from them to offset the tax breaks you're trying to give to the wealthiest among us.  The upper middle class is the only group that has money you can take, if you refuse to take it from billionaires.

Personally, I'm in favor of progressive taxes only if they are progressive all the way to the top.  If you're going to pay a man ten dollars a day or a hundred dollars per day, he is happy to get both because they mean he can eat.  But if you're going to give him ten million dollars per day or a hundred millions dollars per day, what is he seriously going to do with it?  The marginal utility of money diminishes so rapidly at that point that progressive taxes absolutely make sense to me. If you're making a million dollars per day, I'm absolutely in favor of of a 90% tax rate.  That money means almost nothing to you, and our government can use it more effectively than you can.  All those stealth bombers need to be sanded down and repainted every six months.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Undecided on November 02, 2017, 07:59:52 PM
My question is, if the tax reform passes, will this drive a shift towards more states raising more of their revenue through property taxes rather than income taxes? (Since less of the money comes out of their residents pockets and more comes out of their residents' federal tax returns). Still trying to work through that the second order effects of a general increase in property taxes across the country would be... (although potentially offset by a decrease in state income taxes).

Notwithstanding all the Republican tax rhetoric about eliminating distortion, this bill is rife with potential distortions. Yours is a plausible example (and since property taxes are widely considered more regressive than income taxes, maybe not a surprising one). Here's another:  I am a W-2 employee, but a considerable factor in the market pressures that set my salary is the income I could make as an owner of a business that would at least have a crack at qualifying for the preferential tax treatment being proposed in this bill. I've passed up such ownership opportunities in the past for a combination of reasons, but it would be a *different combination* if those other opportunities also benefited from better tax treatment.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: maizefolk on November 02, 2017, 08:17:33 PM
until today, I at least hadn't made the connection that trading deductions for credits (in a net revenue neutral fashion) has the effect of making an overall tax code more progressive.

My wife made the point to me early today that even your observation here isn't quite what it seems, because the lowest income people don't pay taxes anyway.  Sure, part of this new tax plan would make taxes more progressive for people earning more than about the median income and less than the top 10%, but it offers huge breaks to the top 10% and it offers nothing at all to the bottom ~half of earners (because they already pay zero).  It's not really progressive because it doesn't penalize the rich more than the poor, it instead rewards the rich and does nothing for the poor (and penalizes the middle).

That's a good point. I guess I was thinking of these as refundable credits (like EITC or the additional child tax credit), but I suppose the current credits we're discussing certainly aren't refundable. So you and your wife are absolutely correct. A revenue neutral trade of tax deductions for tax credits is going to be benefit the lowest income households who currently owe next taxes (which might already mean they're at or above the median household income) relative to people in higher income tax brackets, but it doesn't provide any additional benefit to people with even lower incomes who don't currently pay federal income taxes.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: DavidAnnArbor on November 02, 2017, 08:32:18 PM
So pass-through income will be taxed at a max of 25% then ?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: teen persuasion on November 02, 2017, 09:09:12 PM
until today, I at least hadn't made the connection that trading deductions for credits (in a net revenue neutral fashion) has the effect of making an overall tax code more progressive.

My wife made the point to me early today that even your observation here isn't quite what it seems, because the lowest income people don't pay taxes anyway.  Sure, part of this new tax plan would make taxes more progressive for people earning more than about the median income and less than the top 10%, but it offers huge breaks to the top 10% and it offers nothing at all to the bottom ~half of earners (because they already pay zero).  It's not really progressive because it doesn't penalize the rich more than the poor, it instead rewards the rich and does nothing for the poor (and penalizes the middle).

That's a good point. I guess I was thinking of these as refundable credits (like EITC or the additional child tax credit), but I suppose the current credits we're discussing certainly aren't refundable. So you and your wife are absolutely correct. A revenue neutral trade of tax deductions for tax credits is going to be benefit the lowest income households who currently owe next taxes (which might already mean they're at or above the median household income) relative to people in higher income tax brackets, but it doesn't provide any additional benefit to people with even lower incomes who don't currently pay federal income taxes.
It looks like the CTC will only be refundable to the current $1k, and the family credits are not refundable at all.

If something is not mentioned, that means it is not being altered, correct?  So the Retirement Saver's credit and EITC remain unchanged?  If so, our tax status will remain exactly the same.  That's much better than the extra $8200 in tax I was expecting if the traditional 401k limit had been cut to $2400.  Devil's in the details.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: kingxiaodi on November 02, 2017, 09:12:21 PM
3) 5 people in household resulted in 20250$ standard deduction which shall now be 24,000 for my spouse and I = 3750$ Higher deduction (roughly 560$ @ 15% rate)

Wasn't $20250 only your personal exemption (5 x $4050)? There should have been another deduction on top of that (either standard for MFJ-$12700, or whatever your itemized deductions were). Regardless, while your deduction is probably smaller than it used to be, you'll probably end up around the same tax number due to the child tax credit increase.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sol on November 02, 2017, 09:34:56 PM
Wasn't $20250 only your personal exemption (5 x $4050)? There should have been another deduction on top of that

I seriously think Republicans are banking on most Americans not knowing the difference between an exemption and a deduction.

Just as an example, in my area an average family with 2 kids who owns their own average priced house is currently able to claim about $16k in personal and dependent exemptions (~$4k for each person) and THEN another $15k-20k in itemized deductions (mortgage interest, state property taxes, sales tax deduction) depending on how old their mortgage is.  That's at least $30k of untaxed income this year, without contributing a penny to a 401k or an HSA or any charity.  The new plan reduces that minimum of $30k to $24k, subjecting an extra $6k to taxation at your marginal rate.

But most people just plug their numbers into TurboTax or TaxAct, and they don't really understand how all the math works.  They think they're saving money with this deal because they don't know how to run the numbers themselves.  I think a lot of people are in for a rude awakening if they're expecting to save $4k this year like the President promised them.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on November 03, 2017, 04:12:41 AM
Wasn't $20250 only your personal exemption (5 x $4050)? There should have been another deduction on top of that

I seriously think Republicans are banking on most Americans not knowing the difference between an exemption and a deduction.

Just as an example, in my area an average family with 2 kids who owns their own average priced house is currently able to claim about $16k in personal and dependent exemptions (~$4k for each person) and THEN another $15k-20k in itemized deductions (mortgage interest, state property taxes, sales tax deduction) depending on how old their mortgage is.  That's at least $30k of untaxed income this year, without contributing a penny to a 401k or an HSA or any charity.  The new plan reduces that minimum of $30k to $24k, subjecting an extra $6k to taxation at your marginal rate.

But most people just plug their numbers into TurboTax or TaxAct, and they don't really understand how all the math works.  They think they're saving money with this deal because they don't know how to run the numbers themselves.  I think a lot of people are in for a rude awakening if they're expecting to save $4k this year like the President promised them.

The increased child tax credits offset alot of this.  But if you didn't itemize you come out ahead. If you did itemize there is a greater chance you'll be behind.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: talltexan on November 03, 2017, 07:04:05 AM
I'm personally glad they are slashing the mortgage deduction.

Its still 500K.  No reason in my opinion to subsidize an excessive lifestyle.

I have been consistent in opposing the mortgage interest deduction.

However, I think this reduction is going to cause housing prices in premium markets to sky-rocket. Suppose you're a typical Bay Area family, with income of $160K, and a house worth $860,000 that you have a mortgage of $650,000 on.

You want to move up to a bigger house--perhaps add a third bedroom--but you don't want to lose your grandfathered mortgage. So now selling isn't so appealing. In order to get enough equity so that you can finance your new house with a $500,000 mortgage, you're willing to sell this two bedroom house for $1.1 million.

But this means that the three bedroom houses are going to appreciate by 30% as well, putting them even farther out of reach.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sokoloff on November 03, 2017, 07:08:58 AM
I have been consistent in opposing the mortgage interest deduction.

However, I think this reduction is going to cause housing prices in premium markets to sky-rocket. Suppose you're a typical Bay Area family, with income of $160K, and a house worth $860,000 that you have a mortgage of $650,000 on.

You want to move up to a bigger house--perhaps add a third bedroom--but you don't want to lose your grandfathered mortgage. So now selling isn't so appealing. In order to get enough equity so that you can finance your new house with a $500,000 mortgage, you're willing to sell this two bedroom house for $1.1 million.

But this means that the three bedroom houses are going to appreciate by 30% as well, putting them even farther out of reach.
I think this analysis ignores the fact that the new buyer faces the opposite problem: they now can't get a deductible mortgage of 80% of $1.1MM.

I think it will cause a slowing of sales and an overall decrease in the rate of price appreciation in owner-occupied high-end real estate. I think it shifts power over to commercial buyers of real estate and away from owner-occupants. (Commercial entities still deduct unlimited mortgages.)
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: ZiziPB on November 03, 2017, 07:29:55 AM
One interesting tidbit about the new limited mortgage deduction - you cannot use it for a second home now.  It's limited to one primary residence.  Overall, I support the changes to this deduction.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: I'm a red panda on November 03, 2017, 07:34:06 AM
I have been consistent in opposing the mortgage interest deduction.

However, I think this reduction is going to cause housing prices in premium markets to sky-rocket. Suppose you're a typical Bay Area family, with income of $160K, and a house worth $860,000 that you have a mortgage of $650,000 on.

You want to move up to a bigger house--perhaps add a third bedroom--but you don't want to lose your grandfathered mortgage. So now selling isn't so appealing. In order to get enough equity so that you can finance your new house with a $500,000 mortgage, you're willing to sell this two bedroom house for $1.1 million.

But this means that the three bedroom houses are going to appreciate by 30% as well, putting them even farther out of reach.
I think this analysis ignores the fact that the new buyer faces the opposite problem: they now can't get a deductible mortgage of 80% of $1.1MM.

I think it will cause a slowing of sales and an overall decrease in the rate of price appreciation in owner-occupied high-end real estate. I think it shifts power over to commercial buyers of real estate and away from owner-occupants. (Commercial entities still deduct unlimited mortgages.)

It seems like it will hurt sales in a certain range.  A house that would have sold for $550,000 isn't going to sell for that- people will offer under $500k. A buyer in that range (maybe to $600-650?) is going to do all they can to spend no more than $499,999. Above a certain number it isn't going to matter I suspect- if someone wants a $1 mil house, I would guess they still get it.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sokoloff on November 03, 2017, 07:45:28 AM
A house that would have sold for $550,000 isn't going to sell for that- people will offer under $500k. A buyer in that range (maybe to $600-650?) is going to do all they can to spend no more than $499,999. Above a certain number it isn't going to matter I suspect- if someone wants a $1 mil house, I would guess they still get it.
It's the mortgage amount, not the purchase price, that drives deductibility. A $500K mortgage and a $50K downpayment gets you to a $550K purchase price.

The rules are likely to be like today's rules (with the $1MM limit), where a mortgage of $600K would now be 5/6ths deductible in the first year. (A mortgage of $501K isn't $0 eligible; it's $500K eligible and $1K non-eligible.)
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: TempusFugit on November 03, 2017, 07:46:40 AM
I have been consistent in opposing the mortgage interest deduction.

However, I think this reduction is going to cause housing prices in premium markets to sky-rocket. Suppose you're a typical Bay Area family, with income of $160K, and a house worth $860,000 that you have a mortgage of $650,000 on.

You want to move up to a bigger house--perhaps add a third bedroom--but you don't want to lose your grandfathered mortgage. So now selling isn't so appealing. In order to get enough equity so that you can finance your new house with a $500,000 mortgage, you're willing to sell this two bedroom house for $1.1 million.

But this means that the three bedroom houses are going to appreciate by 30% as well, putting them even farther out of reach.
I think this analysis ignores the fact that the new buyer faces the opposite problem: they now can't get a deductible mortgage of 80% of $1.1MM.

I think it will cause a slowing of sales and an overall decrease in the rate of price appreciation in owner-occupied high-end real estate. I think it shifts power over to commercial buyers of real estate and away from owner-occupants. (Commercial entities still deduct unlimited mortgages.)

It seems like it will hurt sales in a certain range.  A house that would have sold for $550,000 isn't going to sell for that- people will offer under $500k. A buyer in that range (maybe to $600-650?) is going to do all they can to spend no more than $499,999. Above a certain number it isn't going to matter I suspect- if someone wants a $1 mil house, I would guess they still get it.

I doubt that it will be an all-or-nothing deduction. I haven't read it, so maybe I'm mistaken, but I would expect that you could still deduct the interest on the 500k even if the total mortgage was higher.  Meaning that for every 1K above that (loan) amount, you would in effect be paying higher interest (since no deduction) but it wouldn't be so dramatic as to make you walk away over a few thousand dollars in purchase price.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sherr on November 03, 2017, 07:51:28 AM
Estate tax - I think the tax is morally wrong.  Why should the government tax you for dying?  Didn't they tax your income while you were alive?  Didn't they tax your spending when you were alive?  Didn't they tax your property when you were alive?  Why do they get another bite just because the reaper visited?  Because it's a convenient bucket of money for the rest of us?  Because we can rationalize that it's only super mega rich that have to pay it?  Seems wrong to me. 

I still can't understand how this is anything more than a propagandised idea to specifically benefit the ultra-rich. All taxes are taxing money that has already been taxed.

FICA taxes? But I already paid income taxes!
Gas tax? But I already paid income tax on that money!
Property tax? But I already paid income tax on that money!
Sales tax? But I already paid income tax on that money!

Why do they get another bite just because the reaper visited? Because we do not want to go back to a society where the landed gentry own everything and the 99% "serfs" are more or less lifelong slaves. Go watch Downton Abbey or Poldark and ask yourself if that was better than today's world for the average person. And the estate tax is one of the only mechanisms we have in place to prevent that from happening again.

So yes, it is targeted at only affecting the ultra-rich, because that is the class of people that we have to worry about. Double the limits, fine. Index for inflation, great. Make absolutely sure that it only affects the targeted class and not land-wealthy "small" farms. But don't outright repeal it. A literal once-in-a-lifetime tax of 40% on the value of your estate that's more than $22MM is not going to make any heir destitute. Annoying for them, sure, no one likes paying taxes. But they will still have plenty of money to inherit that they didn't earn, and be able to live an excessive life of luxury or leverage their excessive wealth to build their own empire.

But it's necessary for society to have some way of ensuring that that fabulous wealth doesn't just exponentially grow and control more and more and more for forever. And it's no more "immoral" to charge an estate tax than it is literally any other type of tax that exists.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: bobcobb7 on November 03, 2017, 08:08:16 AM
Wasn't $20250 only your personal exemption (5 x $4050)? There should have been another deduction on top of that

I seriously think Republicans are banking on most Americans not knowing the difference between an exemption and a deduction.

Just as an example, in my area an average family with 2 kids who owns their own average priced house is currently able to claim about $16k in personal and dependent exemptions (~$4k for each person) and THEN another $15k-20k in itemized deductions (mortgage interest, state property taxes, sales tax deduction) depending on how old their mortgage is.  That's at least $30k of untaxed income this year, without contributing a penny to a 401k or an HSA or any charity.  The new plan reduces that minimum of $30k to $24k, subjecting an extra $6k to taxation at your marginal rate.

But most people just plug their numbers into TurboTax or TaxAct, and they don't really understand how all the math works.  They think they're saving money with this deal because they don't know how to run the numbers themselves.  I think a lot of people are in for a rude awakening if they're expecting to save $4k this year like the President promised them.

The increased child tax credits offset alot of this.  But if you didn't itemize you come out ahead. If you did itemize there is a greater chance you'll be behind.

This will be where we come in. About 12k in exemptions and 24k in deductions with SALT included. So about 36k. Take away personal exemptions and SALT and we no longer itemize. That will be reduced to the 24k standard deduction so that doesn't look that great.

But if we account for the shift in tax brackets, say on 90k taxable, the old brackets would be about 14k in taxes owed and the new ones would be about 11k in taxes owed which evens out the additional tax owed by doing the new standard deduction.

Does this look right to you all?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: I'm a red panda on November 03, 2017, 08:10:48 AM
A house that would have sold for $550,000 isn't going to sell for that- people will offer under $500k. A buyer in that range (maybe to $600-650?) is going to do all they can to spend no more than $499,999. Above a certain number it isn't going to matter I suspect- if someone wants a $1 mil house, I would guess they still get it.
It's the mortgage amount, not the purchase price, that drives deductibility. A $500K mortgage and a $50K downpayment gets you to a $550K purchase price.

The rules are likely to be like today's rules (with the $1MM limit), where a mortgage of $600K would now be 5/6ths deductible in the first year. (A mortgage of $501K isn't $0 eligible; it's $500K eligible and $1K non-eligible.)

Thanks for the correction.

I still suspect it will just depress a small range of prices. 
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Scandium on November 03, 2017, 08:18:13 AM
Yep, pragmatic economists of both political persuasions tend to agree that estate taxes are the best taxes to the extent that you care about not distorting decisions (you don't avoid death to avoid paying taxes) and building a meritocracy (that one should be obvious).
It causes distortions while people are alive. Trust and estate planning lawyers love the estate tax; it drives a lot of business.

Our family doesn't have (nearly) enough money to worry about the current $11-ish MM estate limit, but because we're mid-40s now, many of our cFIREsim scenarios do have us ending with more than that, so we have incentives while we're middle-aged to begin transferring some of that wealth into vehicles that will allow portions of that to escape the estate tax (so the growth occurs in those vehicles rather than in our estate). But, because we're "only" just barely millionaires, with a lot of our net worth locked up in equity in our primary residence, we have other cFIREsim scenarios that are on the meager side if we now transfer too much of that wealth outside of our means to access.

So, for all this, we enrich trust and estate planning people who are able to help us, meaning the estate tax absolutely causes distortions (basically, causes a whole industry to exist in substantially larger form than otherwise) versus "keep it all normally managed, ensure you don't run out, make a will to dictate your distribution to charities, offspring, and other family members only upon death".

How much business can the estate tax drive, when only 0.2% of people in the country were affected by it every year, or 4,700 potential customers?
http://time.com/money/4444752/how-many-people-pay-estate-death-tax/
I think that ranks pretty low as far as distortions go.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: NextTime on November 03, 2017, 08:27:18 AM
Estate tax - I think the tax is morally wrong.  Why should the government tax you for dying?  Didn't they tax your income while you were alive?  Didn't they tax your spending when you were alive?  Didn't they tax your property when you were alive?  Why do they get another bite just because the reaper visited?  Because it's a convenient bucket of money for the rest of us?  Because we can rationalize that it's only super mega rich that have to pay it?  Seems wrong to me. 

I still can't understand how this is anything more than a propagandised idea to specifically benefit the ultra-rich. All taxes are taxing money that has already been taxed.

FICA taxes? But I already paid income taxes!
Gas tax? But I already paid income tax on that money!
Property tax? But I already paid income tax on that money!
Sales tax? But I already paid income tax on that money!

Why do they get another bite just because the reaper visited? Because we do not want to go back to a society where the landed gentry own everything and the 99% "serfs" are more or less lifelong slaves. Go watch Downton Abbey or Poldark and ask yourself if that was better than today's world for the average person. And the estate tax is one of the only mechanisms we have in place to prevent that from happening again.

So yes, it is targeted at only affecting the ultra-rich, because that is the class of people that we have to worry about. Double the limits, fine. Index for inflation, great. Make absolutely sure that it only affects the targeted class and not land-wealthy "small" farms. But don't outright repeal it. A literal once-in-a-lifetime tax of 40% on the value of your estate that's more than $22MM is not going to make any heir destitute. Annoying for them, sure, no one likes paying taxes. But they will still have plenty of money to inherit that they didn't earn, and be able to live an excessive life of luxury or leverage their excessive wealth to build their own empire.

But it's necessary for society to have some way of ensuring that that fabulous wealth doesn't just exponentially grow and control more and more and more for forever. And it's no more "immoral" to charge an estate tax than it is literally any other type of tax that exists.



Why should people have to pay income taxes on money they actually labor and work for, while someone who just happened to be born into a certain family can inherit millions/billions of dollars that they did not earn/work for, tax free?  Why do lottery winners and gamblers have to pay 40% tax on their winnings if millionaire/billionaire heirs get off tax free? The money they won has already been taxed, right? Why are capital gains and dividends taxed lower than income? The wealthy make the rules and are constantly coming up with ways to try and stack the deck ever more in their favor. And that's exactly what this bill is about.

In my opinion it's immoral to repeal the estate tax when you compare it to everything else they do tax the shit out of.


Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: maizefolk on November 03, 2017, 08:29:11 AM
America is a nation of optimists. A lot more people assume (or just hope) that they're going to die deca-millionaires than actually do.

In order for a lawyer or financial advisor to see a customer on fancy, complex, and expensive estate tax avoidance strategies, it is only enough that their potential customer thinks they might have enough money to be subject to the estate tax at death, not that they actually hit that mark before death.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: OurTown on November 03, 2017, 08:35:22 AM
Since we have dodged the bullet (for the moment) on the 401(k) issue, I think we will come out slightly ahead, maybe to the tune of 2 or 3 grand.  BTW, has anyone figured out the $300 credits you can claim in the first six years?
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CorpRaider on November 03, 2017, 08:40:28 AM
Estate tax - I think the tax is morally wrong.  Why should the government tax you for dying?  Didn't they tax your income while you were alive?  Didn't they tax your spending when you were alive?  Didn't they tax your property when you were alive?  Why do they get another bite just because the reaper visited?  Because it's a convenient bucket of money for the rest of us?  Because we can rationalize that it's only super mega rich that have to pay it?  Seems wrong to me. 

I still can't understand how this is anything more than a propagandised idea to specifically benefit the ultra-rich. All taxes are taxing money that has already been taxed.

FICA taxes? But I already paid income taxes!
Gas tax? But I already paid income tax on that money!
Property tax? But I already paid income tax on that money!
Sales tax? But I already paid income tax on that money!

Why do they get another bite just because the reaper visited? Because we do not want to go back to a society where the landed gentry own everything and the 99% "serfs" are more or less lifelong slaves. Go watch Downton Abbey or Poldark and ask yourself if that was better than today's world for the average person. And the estate tax is one of the only mechanisms we have in place to prevent that from happening again.

So yes, it is targeted at only affecting the ultra-rich, because that is the class of people that we have to worry about. Double the limits, fine. Index for inflation, great. Make absolutely sure that it only affects the targeted class and not land-wealthy "small" farms. But don't outright repeal it. A literal once-in-a-lifetime tax of 40% on the value of your estate that's more than $22MM is not going to make any heir destitute. Annoying for them, sure, no one likes paying taxes. But they will still have plenty of money to inherit that they didn't earn, and be able to live an excessive life of luxury or leverage their excessive wealth to build their own empire.

But it's necessary for society to have some way of ensuring that that fabulous wealth doesn't just exponentially grow and control more and more and more for forever. And it's no more "immoral" to charge an estate tax than it is literally any other type of tax that exists.

Agree.  Break up dynastic wealth or at least reset the game a little.  But this is going to be a serious off topic thread hijack.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on November 03, 2017, 08:49:44 AM
Since we have dodged the bullet (for the moment) on the 401(k) issue, I think we will come out slightly ahead, maybe to the tune of 2 or 3 grand.  BTW, has anyone figured out the $300 credits you can claim in the first six years?

what section is this in
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sol on November 03, 2017, 08:54:09 AM
Since we have dodged the bullet (for the moment) on the 401(k) issue, I think we will come out slightly ahead, maybe to the tune of 2 or 3 grand.  BTW, has anyone figured out the $300 credits you can claim in the first six years?

what section is this in

I think OT is referring to the expanded nonrefundable family/child tax credits.

Basically, they're a patch to make it seem like the Republican tax plan isn't just stealing from the poor to give to the rich.    The temporary tax credit makes it look like it's neutral or even slightly positive for poor people, but then the credit phases out.  The long term plan here is to take from the poor, they're just delaying the onset of the taking.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Undecided on November 03, 2017, 09:03:07 AM
America is a nation of optimists. A lot more people assume (or just hope) that they're going to die deca-millionaires than actually do.

In order for a lawyer or financial advisor to see a customer on fancy, complex, and expensive estate tax avoidance strategies, it is only enough that their potential customer thinks they might have enough money to be subject to the estate tax at death, not that they actually hit that mark before death.

That’s not quite it. Rather, it’s not about the 4,700 people who die subject to the estate tax in any year, but rather it’s about the top 0.2% of the population in total who would be heading there (and sure, some penumbra that is concerned about heading there, but may not). If Bernie Sanders was right that the top 0.1% of the US controls about 23% of the total wealth, that’s a huge market.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CorpRaider on November 03, 2017, 09:05:52 AM
Yeah seems like the implementation of the mtg interest thing could cause a lot of distortions with people not wanting to move or take a new mortgage in high property value markets since they are grandfathered in and as someone else pointed out, people scrambling to get in.  Can't believe freedom caucus, budget hawk, Mark Meadows is quoted as being against the second home mtg interest deduction.  Wow, I bet those tea partiers would love to know that!

Yeah estate and gift tax impacts behavior more than raises revenue. 

Don't see how they are going to give stepped up basis with no tax on the appreciation at death.  That is much more perverse than the straw man, "taxed twice" argument.  That gain is now going to be "never taxed."  Meanwhile the working stiffs are paying 39.6%.

Seems like the passthroughs and foreign tax elements are likely to be huge clusterfks.  Koch bros already coming out against the modest 20% flat tax on transfer pricing techniques that shift income to Ireland, caymans and other tax havens.  I thought they were in favor of a flat, fair tax that removed the crony capitalism and tax chicanery.  Between them and the "freedom caucus" going to mattresses for vacation homes, I'm starting to suspect these guys are full of it.

Hmm, if Meadows isn't on board, Kochs are actively working against and NE republicans are going to balk at SALT.....might be DOA.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Scandium on November 03, 2017, 09:13:31 AM
America is a nation of optimists. A lot more people assume (or just hope) that they're going to die deca-millionaires than actually do.

In order for a lawyer or financial advisor to see a customer on fancy, complex, and expensive estate tax avoidance strategies, it is only enough that their potential customer thinks they might have enough money to be subject to the estate tax at death, not that they actually hit that mark before death.

That’s not quite it. Rather, it’s not about the 4,700 people who die subject to the estate tax in any year, but rather it’s about the top 0.2% of the population in total who would be heading there (and sure, some penumbra that is concerned about heading there, but may not). If Bernie Sanders was right that the top 0.1% of the US controls about 23% of the total wealth, that’s a huge market.
What? How is that any "huger" a market? If it effects 0.2% then that's the market; 5000 people. How much percentage wealth they control has no impact on the number of people in the market for those services.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CorpRaider on November 03, 2017, 09:15:33 AM
It impacts (i.e., changes behavior, such as encouraging gifting and other transfers to break up the estate) many more than the individuals who pay the tax.  Basically, as is, you're only going to pay the tax if you are really really rich and really really dumb/negligent.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sokoloff on November 03, 2017, 09:16:21 AM
Can't believe freedom caucus, budget hawk, Mark Meadows is quoted as being against the second home mtg interest deduction. Wow, I bet those tea partiers would love to know that!
I'm not following. Why would being against a second home MID be such a critical point for the Tea Party types? That would seem to be way down on the list of things they'd worry about.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CorpRaider on November 03, 2017, 09:17:58 AM
Yeah, I agree.  I bet he didn't mention that at all at any of the tea party rallies when they were railing at the exploding debt and talking about crony capitalism and government handouts.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: OurTown on November 03, 2017, 09:29:45 AM
From Business Insider:

The plan would also create a $300 credit for "non-child dependents." Confusingly, your child might be a non-child dependent. This credit would essentially apply to any dependent who doesn't qualify for the child tax credit, which could mean an elderly parent but could also mean your dependent child aged 17 or over.

Finally, the plan would create a $300 "family flexibility credit." This would be a credit of $300 for yourself and $300 for your spouse.

* * *

Oh good, $300 for me, my spouse, and my stay at home unemployed millennial.

Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Scandium on November 03, 2017, 09:34:22 AM
It impacts (i.e., changes behavior, such as encouraging gifting and other transfers to break up the estate) many more than the individuals who pay the tax.  Basically, as is, you're only going to pay the tax if you are really really rich and really really dumb/negligent.

Not following. The point was that the estate tax drove "huge market" to tax attorneys. But it's < 5,000 people so I didn't see this a particularly relevant concern. Nor do I think people giving away their estate rather than paying the tax is a big deal either. If anything, if the point is to reduce the amount of inherited wealth then it doesn't matter whether the state takes 40%, or the person give it away. Goal is achieved either way.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: Undecided on November 03, 2017, 09:39:12 AM
America is a nation of optimists. A lot more people assume (or just hope) that they're going to die deca-millionaires than actually do.

In order for a lawyer or financial advisor to see a customer on fancy, complex, and expensive estate tax avoidance strategies, it is only enough that their potential customer thinks they might have enough money to be subject to the estate tax at death, not that they actually hit that mark before death.

That’s not quite it. Rather, it’s not about the 4,700 people who die subject to the estate tax in any year, but rather it’s about the top 0.2% of the population in total who would be heading there (and sure, some penumbra that is concerned about heading there, but may not). If Bernie Sanders was right that the top 0.1% of the US controls about 23% of the total wealth, that’s a huge market.
What? How is that any "huger" a market? If it effects 0.2% then that's the market; 5000 people. How much percentage wealth they control has no impact on the number of people in the market for those services.

No, it’s more than 600,000 living people, not 4,700 who died in the year, and their wealth absolutely affects “the market,” because the market is the amount of money being spent, not the number of people spending it. The more money they have, the more it’s worth it to them to shield it from estate taxes, supporting throwing more billable time at solving the problem.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sokoloff on November 03, 2017, 09:41:06 AM
It impacts (i.e., changes behavior, such as encouraging gifting and other transfers to break up the estate) many more than the individuals who pay the tax.  Basically, as is, you're only going to pay the tax if you are really really rich and really really dumb/negligent.
Not following. The point was that the estate tax drove "huge market" to tax attorneys. But it's < 5,000 people so I didn't see this a particularly relevant concern. Nor do I think people giving away their estate rather than paying the tax is a big deal either. If anything, if the point is to reduce the amount of inherited wealth then it doesn't matter whether the state takes 40%, or the person give it away. Goal is achieved either way.
There are "X" number of people who feel they might be affected by an estate tax and choose to engage the services of trust/estate planners.

After that is done, there are ~5000 estates that still fall under the estate tax rules. It is overwhelmingly likely that I will be able to avoid the estate tax by either proper planning or by having sub-par market returns during my retirement years. So, I won't be in the 5000, but I've already paid money to estate planners.

The "X" is much higher than 5000/year and the "X" is the market for these services. The 5000 is mostly the people who fucked up and didn't avail themselves of these services.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: CorpRaider on November 03, 2017, 09:44:27 AM
I think I pretty much convinced myself this is DOA, as is, so I'm going shut down all mental effort unless and until I read it has passed both houses.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sherr on November 03, 2017, 09:45:30 AM
Agree.  Break up dynastic wealth or at least reset the game a little.  But this is going to be a serious off topic thread hijack.

Well since Republicans are no longer Considering Sharp Cuts in 401(k) Contribution Limits, I'd say the entire thread is already off topic. :)
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: ixtap on November 03, 2017, 09:46:39 AM
It impacts (i.e., changes behavior, such as encouraging gifting and other transfers to break up the estate) many more than the individuals who pay the tax.  Basically, as is, you're only going to pay the tax if you are really really rich and really really dumb/negligent.

Not following. The point was that the estate tax drove "huge market" to tax attorneys. But it's < 5,000 people so I didn't see this a particularly relevant concern. Nor do I think people giving away their estate rather than paying the tax is a big deal either. If anything, if the point is to reduce the amount of inherited wealth then it doesn't matter whether the state takes 40%, or the person give it away. Goal is achieved either way.

Even if it is a family foundation that pays each of the kids a couple hundred thousand dollars to sit on the board? I mean, sure, at least they are paying income taxes on that...
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: sokoloff on November 03, 2017, 09:56:01 AM
Even if it is a family foundation that pays each of the kids a couple hundred thousand dollars to sit on the board? I mean, sure, at least they are paying income taxes on that...
Well I mean, who better to know what great-great-grandpa Jim would have wanted than some people related by blood who've never met the guy?!
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: teen persuasion on November 03, 2017, 10:50:40 AM
Since we have dodged the bullet (for the moment) on the 401(k) issue, I think we will come out slightly ahead, maybe to the tune of 2 or 3 grand.  BTW, has anyone figured out the $300 credits you can claim in the first six years?

what section is this in

I think OT is referring to the expanded nonrefundable family/child tax credits.

Basically, they're a patch to make it seem like the Republican tax plan isn't just stealing from the poor to give to the rich.    The temporary tax credit makes it look like it's neutral or even slightly positive for poor people, but then the credit phases out.  The long term plan here is to take from the poor, they're just delaying the onset of the taking.

Oh, good catch - I hadn't caught the Jan 1, 2023 expiration date on that.  Ok, that changes my impact from 0 right now to sudden tax increase (thru loss of credits) in 5 years.  Just as the youngest turns 17 and we are beginning FAFSA filing for him.  It really won't be a good time for us to begin Roth conversions!

It's striking how often that ~$24k annual income level is an inflection point: new standard deduction for MFJ, rough point at which max EITC phaseout begins, 150% FPL for a couple (to stay off Medicaid), AGI cap for EFC = 0 (believe this one is $25k now).
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: boarder42 on November 03, 2017, 10:53:41 AM
Since we have dodged the bullet (for the moment) on the 401(k) issue, I think we will come out slightly ahead, maybe to the tune of 2 or 3 grand.  BTW, has anyone figured out the $300 credits you can claim in the first six years?

what section is this in

I think OT is referring to the expanded nonrefundable family/child tax credits.

Basically, they're a patch to make it seem like the Republican tax plan isn't just stealing from the poor to give to the rich.    The temporary tax credit makes it look like it's neutral or even slightly positive for poor people, but then the credit phases out.  The long term plan here is to take from the poor, they're just delaying the onset of the taking.

Oh, good catch - I hadn't caught the Jan 1, 2023 expiration date on that.  Ok, that changes my impact from 0 right now to sudden tax increase (thru loss of credits) in 5 years.  Just as the youngest turns 17 and we are beginning FAFSA filing for him.  It really won't be a good time for us to begin Roth conversions!

It's striking how often that ~$24k annual income level is an inflection point: new standard deduction for MFJ, rough point at which max EITC phaseout begins, 150% FPL for a couple (to stay off Medicaid), AGI cap for EFC = 0 (believe this one is $25k now).

i missed that.  that not a great thing .
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: maizefolk on November 03, 2017, 11:14:09 AM
I missed that the child tax credits are temporary as well. That does indeed put a rather different spin on it. Thanks Sol.
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: maizefolk on November 03, 2017, 12:10:08 PM
I have been consistent in opposing the mortgage interest deduction.

However, I think this reduction is going to cause housing prices in premium markets to sky-rocket. Suppose you're a typical Bay Area family, with income of $160K, and a house worth $860,000 that you have a mortgage of $650,000 on.

You want to move up to a bigger house--perhaps add a third bedroom--but you don't want to lose your grandfathered mortgage. So now selling isn't so appealing. In order to get enough equity so that you can finance your new house with a $500,000 mortgage, you're willing to sell this two bedroom house for $1.1 million.

But this means that the three bedroom houses are going to appreciate by 30% as well, putting them even farther out of reach.
I think this analysis ignores the fact that the new buyer faces the opposite problem: they now can't get a deductible mortgage of 80% of $1.1MM.

I think it will cause a slowing of sales and an overall decrease in the rate of price appreciation in owner-occupied high-end real estate. I think it shifts power over to commercial buyers of real estate and away from owner-occupants. (Commercial entities still deduct unlimited mortgages.)

If home owners aren't willing to sell except for higher prices, and new home buyers will only be able to afford lower payments (because less of the total payment will come back in to them at tax time from mortgage interest and property tax deductions), I predict the end result will be a noticeable slowdown in overall home sales.

That's bad for real estate agents, but also probably bad for the economy overall, because people will be less willing to relocate to pursue new jobs causing more mismatches between labor force supply and demand. I should also mention that the trend in terms of people being less willing to sell their houses and move is already something that's happening across the country, so this would if anything accelerate it, not create a whole new pattern.

(https://i.imgpile.com/nMFgdi.png)

Source for the graph: https://www.nytimes.com/2017/05/14/business/economy/home-ownership-turnover.html
Title: Re: Republicans Consider Sharp Cut in 401(k) Contribution Limits
Post by: YttriumNitrate on November 03, 2017, 12:56:26 PM
Having trouble believing that on a forum about living frugally we are seriously having a discussion about whether a 1 million dollar home is excessive living or not.  What about a 500,000$ lambo?  What about a 15,000$ cappuccino maker?
This whole discussion reminds me of MMM's post on hedonic adaptation, and how it results in just about everyone thinking they are middle class.

http://www.mrmoneymustache.com/2011/10/22/what-is-hedonic-adaptation-and-how-can-it-turn-you-into-a-sukka/ (http://www.mrmoneymustache.com/2011/10/22/what-is-hedonic-adaptation-and-how-can-it-turn-you-into-a-sukka/)

It's no surprise that a person living in a $3 million dollar Palo Alto house will think of themselves as middle class. They have adapted to an environment of high wealth, and there are people with much much more than them in their environment, so clearly they are not the ones who are wealthy.

On the other end of the spectrum, in a rich country it's easy to forget that someone making and spending $32,000 a year is in the top 1% of earners.
http://www.investopedia.com/articles/personal-finance/050615/are-you-top-one-percent-world.asp (http://www.investopedia.com/articles/personal-finance/050615/are-you-top-one-percent-world.asp)