Author Topic: Explain? - Joe Biden Promises To End Traditional 401(k)-Style Retirement Savings  (Read 1621 times)

Heliios

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I just ran across this article:

https://www.forbes.com/sites/ebauer/2020/08/25/joe-biden-promises-to-take-away-401k-style-retirement-savings-whats-that-mean/#60a704184eb0

Evidently, one of Biden's proposals is to end or modify the 401k tax deduction and instead replace it with an expanded Saver's credit. I guess the idea is that almost 50% of workers don't earn enough to pay significant taxes, so the 401k deduction doesn't actually help them much. Instead, the idea is to cut the deduction and give a matched credit to both low- and high-income earners. This would greatly increase the benefit to low-income earners and presumably reduce the benefit to high-income earners.

So my questions:
1) Is this a real Biden proposal or "fake news"?
2) If so, is there any chance it could actually pass congress even with a democrat majority?
3) If so, I didn't really understand the mechanics--could someone explain how this would work, say for example in the 22% tax bracket?

WhiteTrashCash

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Biden -- as part of the Obama administration -- couldn't even get a public option put into the ACA with the Democrats having a supermajority in both the House and Senate. What makes you think he'd be able to make wholesale changes to 401k? He may as well tell everyone he wants to give them a pony while he's dreaming.

Telecaster

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The proposal is real, but I don't know if that specific proposal discussed in Forbes is real. 

Basically, the logic goes like this:  The 401(k)'s purpose is to use the tax code to help people to save for retirement.  But something 80% of the benefit goes to the top 20% of earners (not exact, but something like that).  The top 20% of earners don't need help saving.   It is the bottom percentiles who need the help, and a lot of those workers may not have access to a 401(k) at all.  So if the idea is to use the tax code to help people save for retirement, that's actually what it should do.

KungfuRabbit

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A few other posts on this forum about this. 

But like the person said above, the benefits go to people that dont need it.

The fundamental problem is people making $250,000+ / year and getting $60,000 / year of tax-advantaged money consider themselves "middle class" and increasing taxes on them (or reducing benefits) is political suicide and a non-starter. 

The super ultra rich will get taxed more first, and then if Dems keep winning those tax increases will trickle down. 

Ichabod

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So my questions:
1) Is this a real Biden proposal or "fake news"?
2) If so, is there any chance it could actually pass congress even with a democrat majority?
3) If so, I didn't really understand the mechanics--could someone explain how this would work, say for example in the 22% tax bracket?

1. Mostly fake news? This comes from Biden's website where all it says he wants to switch from deduction to credits for retirement savings. Everything else the article is extrapolated from a similar policy proposed way back in 2014. There's no real details on it, and it doesn't appear to be a priority.
2. Probably not. This feels awfully similar to when Obama tried to reform 529s, but it's too important to upper-middle-class constituents.
3. Again, the website doesn't go into any details. Similar proposals in the past have the credit being around 25%, so someone in the 22% bracket would be better off all else being equal.

Related thread: https://forum.mrmoneymustache.com/welcome-to-the-forum/biden-wants-big-401k-changes/

Finances_With_Purpose

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If memory serves, Obama called for 401ks to be forcibly invested in treasurys during some government crisis.  It lasted about 48 hours before he had to rescind that position.  Make of it whatever you will. 

Telecaster

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If memory serves, Obama called for 401ks to be forcibly invested in treasurys during some government crisis.  It lasted about 48 hours before he had to rescind that position.  Make of it whatever you will.

Your memory fails you.  In 2014 the Obama Admin set up a program for people who don't have access to 401(k)s at work which would them to make automatic payroll deductions which would be invested in treasuries into what was essentially a Roth IRA.  Other than the initial deduction setup, employers did not administer the plan hence there were no management fees of any type.  Part of the point was that most IRAs require a minimum contribution to open (typically $1,000, especially back then) and so lower income people had trouble coming up with the initial account.  And as we all know, saving is easier if it is automatic.  The program was also limited to moderate to lower income workers. 

In short, it was an easy, no-fee, no minimum contribution way for lower income people without an employee sponsored retirement to save for retirement.  For those reasons, it was killed in 2017.

fr3nch13

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The Tax Policy Center did an analysis: https://www.taxpolicycenter.org/sites/default/files/publication/158624/An_Analysis_of_Former_Vice_President_Bidens_Tax_Proposals_1_2.pdf

This analysis assumed a revenue neutral tax credit of 26%.  If this assumption is true, then, for anyone below the 32% tax bracket, this results in a smaller tax bill.  For those in the 32% tax bracket (in 2020 >$163,300 (single) and > $326,600 (jointly) this would result in a higher tax bill.

This is just speculation though.

LaineyAZ

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Biden -- as part of the Obama administration -- couldn't even get a public option put into the ACA with the Democrats having a supermajority in both the House and Senate. What makes you think he'd be able to make wholesale changes to 401k? He may as well tell everyone he wants to give them a pony while he's dreaming.

The notion that Obama had 2 years of control of the House and Senate has been said before, and it's wrong.
Basically:
The Senate operates with a 60-vote requirement filibuster role.  100 Senate seats, so 60 votes are needed to bring legislation to the floor for a vote.  On Jan 20th, 2009 the Dems had 57 seats, the Independents had 2 (Sanders and Lieberman caucusing with the Dems) for a total of 59; the Republicans had 41 seats. 
But:
Ted Kennedy had a seizure during Obama's inaugural lunch and never returned to vote in the Senate.  Al Franken was not officially seated until July 7, 2009.  In April 2009, Rep. Arlen Spector became a Democrat.  Kennedy died, having never returned, on August 25, 2009.  His seat was filled temporarily on 9/24/2009 and gave the Senate Democrats 60 seats until February 4, 2010 when Scott Brown, a Republican, won Kennedy's Massachusetts seat.

So, Obama did "have control" of Congress - for 4 months.  During that time the Affordable Care Act/Obamacare passed.