Author Topic: IRS announces 2015 contribution limits  (Read 14055 times)

RWD

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« Last Edit: October 23, 2014, 11:46:08 AM by RWD »

Beric01

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Re: IRS announces 2015 contribution limits
« Reply #1 on: October 23, 2014, 11:42:00 AM »
Your link doesn't seem to work. Try this link.

Elisabeth

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Re: IRS announces 2015 contribution limits
« Reply #2 on: October 23, 2014, 11:46:24 AM »
Great! But strange - with the "retirement crisis" this country appears to be in, why not raise the limit on the one retirement investment vehicle that everyone has access to, regardless of access to an employment-based plan?!

RWD

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Re: IRS announces 2015 contribution limits
« Reply #3 on: October 23, 2014, 11:46:47 AM »
Your link doesn't seem to work. Try this link.

Thanks, fixed now. The forum parsing logic broke it up in the middle.

Beric01

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Re: IRS announces 2015 contribution limits
« Reply #4 on: October 23, 2014, 11:50:54 AM »
Great! But strange - with the "retirement crisis" this country appears to be in, why not raise the limit on the one retirement investment vehicle that everyone has access to, regardless of access to an employment-based plan?!

I'm assuming they raise contributions based on inflation, rounding to the nearest $500. Inflation with rounding just wasn't enough to increase the $5500 limit to $6000 yet.

seattlecyclone

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Re: IRS announces 2015 contribution limits
« Reply #5 on: October 23, 2014, 11:54:59 AM »
Great! But strange - with the "retirement crisis" this country appears to be in, why not raise the limit on the one retirement investment vehicle that everyone has access to, regardless of access to an employment-based plan?!

I'm assuming they raise contributions based on inflation, rounding to the nearest $500. Inflation with rounding just wasn't enough to increase the $5500 limit to $6000 yet.

This is exactly right. The IRS isn't being somehow malevolent here, they're just following the laws Congress passed, which say to index these limits to inflation and round to the nearest $500.

Middlesbrough

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Re: IRS announces 2015 contribution limits
« Reply #6 on: October 23, 2014, 11:57:17 AM »
This is bulls***. It was supposed to go up to $6,000 this year even with a modest inflation. Stupid CPI. Rage Quit!

2lazy2retire

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Re: IRS announces 2015 contribution limits
« Reply #7 on: October 23, 2014, 12:07:48 PM »
$18k limit for 401(k), IRA limit unchanged at $5.5k.
http://www.irs.gov/uac/Newsroom/IRS-Announces-2015-Pension-Plan-Limitations;-Taxpayers-May-Contribute-up-to-$18,000-to-their-401%28k%29-plans-in-2015

Remember if you happen to have a generous employer - you can get his up to 50K plus, have a word with your boss on matching

skyrefuge

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Re: IRS announces 2015 contribution limits
« Reply #8 on: October 23, 2014, 12:54:01 PM »
Great! But strange - with the "retirement crisis" this country appears to be in, why not raise the limit on the one retirement investment vehicle that everyone has access to, regardless of access to an employment-based plan?!
The IRS isn't being somehow malevolent here, they're just following the laws Congress passed, which say to index these limits to inflation and round to the nearest $500.

Yeah. So asking Congress to change the law would be another option. But it's hardly one that would solve the "retirement crisis". According to Vanguard, more than 60% of US households don't even have an IRA, and of those who contribute to an IRA at Vanguard, 48% of them fail to max it out even at the current limit. Additionally, only 51% have made contributions (in any non-zero amount) 3 years in a row.

Roughly mash all those numbers together, and something like a mere 20% of households manage to hit the IRA contribution limit.

So raising the limit won't much help the "retirement crisis", especially since I bet those maxing out their contributions aren't part of the "retirement crisis" in the first place. By raising the limit, the government would be losing tax income from those of us who max out, with little societal benefit.

Middlesbrough

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Re: IRS announces 2015 contribution limits
« Reply #9 on: October 23, 2014, 01:06:04 PM »
I am the 20% and hear me roar.

trailrated

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Re: IRS announces 2015 contribution limits
« Reply #10 on: October 23, 2014, 01:13:43 PM »
When you are planning your retirement #'s based off of your 401k account is there any way to guestimate what the increases will be over time? Wouldn't these changes have a huge impact on the overall amount after a few decades? Sorry for the noob question.

seattlecyclone

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Re: IRS announces 2015 contribution limits
« Reply #11 on: October 23, 2014, 01:32:21 PM »
When you are planning your retirement #'s based off of your 401k account is there any way to guestimate what the increases will be over time? Wouldn't these changes have a huge impact on the overall amount after a few decades? Sorry for the noob question.

I use constant dollars when doing projections. It makes things a lot easier. If you don't try to estimate inflation, you also don't need to estimate the inflation-based adjustments to contribution limits.

BooksAreNerdy

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Re: IRS announces 2015 contribution limits
« Reply #12 on: October 23, 2014, 01:36:41 PM »
Did HSA limits stay the same?

DidIBreakIt?!

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Re: IRS announces 2015 contribution limits
« Reply #13 on: October 23, 2014, 01:46:45 PM »
HSA limits are increasing, but barely

http://www.irs.gov/pub/irs-drop/rp-14-30.pdf

Scandium

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Re: IRS announces 2015 contribution limits
« Reply #14 on: October 23, 2014, 01:53:43 PM »
When you are planning your retirement #'s based off of your 401k account is there any way to guestimate what the increases will be over time? Wouldn't these changes have a huge impact on the overall amount after a few decades? Sorry for the noob question.

I use constant dollars when doing projections. It makes things a lot easier. If you don't try to estimate inflation, you also don't need to estimate the inflation-based adjustments to contribution limits.
Of course. I didn't think of it that way. I use constant dollars for the projections and now it's obvious that should apply to the limits as well.

But I realized this messes with my raise assumption, which I've taken as 3% per year. But as my raise has been 3% and 2.5% lately (grrr) I should probably adjust that down as I need to subtract inflation. With current inflation at 2.5% I'd have to get a 5.5% raise to make the 3% salary increase assumption accurate!

Ps: yes I realize that if I max my 401k this won't matter. But I don't yet. Just another reason to get there sooner!
« Last Edit: October 23, 2014, 01:59:11 PM by Scandium »

Cheddar Stacker

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Re: IRS announces 2015 contribution limits
« Reply #15 on: October 23, 2014, 02:15:56 PM »
When you are planning your retirement #'s based off of your 401k account is there any way to guestimate what the increases will be over time? Wouldn't these changes have a huge impact on the overall amount after a few decades? Sorry for the noob question.

If you don't want to use real returns/constant dollars, you can just assume about $500 every 2 years as a rough number. It was $15,500 for 2008, $16,500 for 2009, 2010, and 2011, $17,000 for 2012, $17,500 for 2013 and 2014. So in 7-8 years it's gone up $2,500, or $312-357/year.

sobezen

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Re: IRS announces 2015 contribution limits
« Reply #16 on: October 23, 2014, 02:46:38 PM »
Does anyone know why IRA limits are not the same as 401k limits? Apologies if this was answered already. Thanks.

seattlecyclone

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Re: IRS announces 2015 contribution limits
« Reply #17 on: October 23, 2014, 02:47:52 PM »
Does anyone know why IRA limits are not the same as 401k limits? Apologies if this was answered already. Thanks.

Because Congress said so.

MoneyCat

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Re: IRS announces 2015 contribution limits
« Reply #18 on: October 23, 2014, 02:49:55 PM »
Does anyone know why IRA limits are not the same as 401k limits? Apologies if this was answered already. Thanks.

Because if they matched the IRA limit to the 401k limit, then people would have more incentive not to be wage slaves.  We can't have that in the USA.

Cheddar Stacker

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Re: IRS announces 2015 contribution limits
« Reply #19 on: October 23, 2014, 02:55:07 PM »
Does anyone know why IRA limits are not the same as 401k limits? Apologies if this was answered already. Thanks.

Because Congress said so.

Ha!

I think they should just set 1 limit and be done. Use the 415 Limit of $52K/$53K. My plan: "You can defer up to $53K in 2015 from any source you have access to, I don't care how you do it." Done. Income range is irrelevant. Use Roth or Traditional, but $53K total. Easy.

Allen

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Re: IRS announces 2015 contribution limits
« Reply #20 on: October 23, 2014, 04:02:06 PM »
HSA limits are increasing, but barely

http://www.irs.gov/pub/irs-drop/rp-14-30.pdf

OK lets see...employers puts in $25/paycheck * 24 paychecks = $600.  $6,650-6000 = 6050.  $6,050/24 = $252.08...
OK I need to adjust per pay period from $247 to $253!
Yay! That's $6 more in FICA free savings twice a month!

Pooperman

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Re: IRS announces 2015 contribution limits
« Reply #21 on: October 23, 2014, 04:31:12 PM »
HSA limits are increasing, but barely

http://www.irs.gov/pub/irs-drop/rp-14-30.pdf

OK lets see...employers puts in $25/paycheck * 24 paychecks = $600.  $6,650-6000 = 6050.  $6,050/24 = $252.08...
OK I need to adjust per pay period from $247 to $253!
Yay! That's $6 more in FICA free savings twice a month!

My HSA contribution has this nifty 'max' option. Totally takes the guess work out of it!

nereo

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Re: IRS announces 2015 contribution limits
« Reply #22 on: October 23, 2014, 04:35:49 PM »
Does anyone know why IRA limits are not the same as 401k limits? Apologies if this was answered already. Thanks.

Because Congress said so.

Ha!

I think they should just set 1 limit and be done. Use the 415 Limit of $52K/$53K. My plan: "You can defer up to $53K in 2015 from any source you have access to, I don't care how you do it." Done. Income range is irrelevant. Use Roth or Traditional, but $53K total. Easy.

well you got my vote - now what's your proposal for updating our tax code?

frugalecon

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Re: IRS announces 2015 contribution limits
« Reply #23 on: October 23, 2014, 04:41:55 PM »
I turn 50 next year! Yippee! I get to save more on my taxes!!

skyrefuge

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Re: IRS announces 2015 contribution limits
« Reply #24 on: October 23, 2014, 04:49:33 PM »
Does anyone know why IRA limits are not the same as 401k limits? Apologies if this was answered already. Thanks.

IRAs were created by Congress with the intention of actually being a retirement savings account (note the word "retirement" in their name).

401(k)s were not. (Note the lack of any words in their name). They came from an obscure bit of the tax code that a smart benefit consultant reverse-engineered into a retirement savings account.

Due to their weird history, an employee could contribute $30k to their 401(k) in the early years. In 1987 that was reduced to $7k. At that time, the limit on IRAs was $2k.

Between then and 1999, the 401(k) limit was indexed to inflation, while the IRA limit stayed at $2k. So by 1999, the limits were $10k vs. $2k. Both got a huge boost with the EGTRRA in 2001, increasing the limits faster than inflation for the next 5 years (that allowed IRAs to "catch up" a bit, to $15k vs. $4k), and since then both are indexed for inflation.

I think people who started saving in the early 2000s are continually disappointed by the inflation-increases that sometimes don't even come each year, because they were conditioned to believe that the much-larger yearly increases from the EGTRRA were "normal".

One theory posits that an attempt to make the IRA limit equal to the 401(k) limit was quashed by the 401(k) industry.

You can read an excellent history of the 401(k) here: http://www.ici.org/pdf/per12-02.pdf
« Last Edit: October 23, 2014, 04:52:37 PM by skyrefuge »

solon

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Re: IRS announces 2015 contribution limits
« Reply #25 on: October 23, 2014, 04:52:07 PM »
IRAs were created by Congress with the intention of actually being a retirement savings account (note the word "retirement" in their name).

401(k)s were not. (Note the lack of any words in their name). They came from an obscure bit of the tax code that a smart benefit consultant reverse-engineered into a retirement savings account.

So, what was the purpose of a 401k?

skyrefuge

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Re: IRS announces 2015 contribution limits
« Reply #26 on: October 23, 2014, 05:17:26 PM »
So, what was the purpose of a 401k?

Reading the first 4 or 5 pages of the PDF I linked will probably explain it more accurately than me, but my interpretation is that section 401(k) was created as a compromise. In the 1950s, companies has figured out how to treat bonuses from profit-sharing programs as an "employer contribution" in order to defer income tax. Congress wasn't a big fan of this, and probably would have preferred to quash the behavior entirely, but, presumably due to backlash from the rich executives benefiting from the tax-deferral, compromised, and in 1978 came up with section 401(k) as a means to at least regulate the practice more tightly. It was considered such a rare and obscure tax loophole that at the time it was created, Congress apparently estimated that the loss in tax revenue would be "negligible".

In 1981, the IRS created regulations that allowed contributions from ordinary wages, not just from profit-sharing, and the popularity of 401(k)s as a normal retirement savings account starting taking off from there.


Guizmo

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Re: IRS announces 2015 contribution limits
« Reply #27 on: October 23, 2014, 05:20:12 PM »
So, what was the purpose of a 401k?

Reading the first 4 or 5 pages of the PDF I linked will probably explain it more accurately than me, but my interpretation is that section 401(k) was created as a compromise. In the 1950s, companies has figured out how to treat bonuses from profit-sharing programs as an "employer contribution" in order to defer income tax. Congress wasn't a big fan of this, and probably would have preferred to quash the behavior entirely, but, presumably due to backlash from the rich executives benefiting from the tax-deferral, compromised, and in 1978 came up with section 401(k) as a means to at least regulate the practice more tightly. It was considered such a rare and obscure tax loophole that at the time it was created, Congress apparently estimated that the loss in tax revenue would be "negligible".

In 1981, the IRS created regulations that allowed contributions from ordinary wages, not just from profit-sharing, and the popularity of 401(k)s as a normal retirement savings account starting taking off from there.

I was just going to say executive compensation, but that was a better explanation Skyrefuge.

Cheddar Stacker

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Re: IRS announces 2015 contribution limits
« Reply #28 on: October 23, 2014, 06:43:12 PM »
I think they should just set 1 limit and be done. Use the 415 Limit of $52K/$53K. My plan: "You can defer up to $53K in 2015 from any source you have access to, I don't care how you do it." Done. Income range is irrelevant. Use Roth or Traditional, but $53K total. Easy.

well you got my vote - now what's your proposal for updating our tax code?

I can't run, too many skeletons, and I wouldn't want to anyway, but thanks for your vote.

Tax plan off the cuff, so I'm sure there are some holes:
I'd eliminate all special interest deductions over a period of ~10 years to allow for the economy to adjust. No qualified investment treatment, no mortgage interest, no kiddie credits, no energy credits, etc. etc.

I'd actually eliminate annual filing requirements for all individuals and put the burden on the payer rather than the payee, much like how sales tax filing burden is on the seller.

Any business paying you any amount of income (wages, ira, dividends, capital gains) would be required to withhold appropriate income taxes and remit them monthly to the IRS. The IRS becomes a shell of itself leaving only computers to process all the data and some customer service reps, but that could even be outsourced. Maybe leave a few people in charge, and leave a few auditors.

In a system like this it would be hard, but not impossible, to have graduated tax tables. Maybe the first $5k from each source is taxed at 5%, then the next 20k at 10%, then the next 75k at 15% and so on. No deductions, no exemptions, no credits. I see two main ways around paying high rates: 1) fraud, but that's already an issue and 2) spreading income over multiple payers to get more income taxed at 5%.

#1 will always be a problem with any system. #2 can be monitored with a computer program (irs already uses one called cp-2000) and any avoidance through multiple payers can be garnished via withholdings the following year.
« Last Edit: October 23, 2014, 07:03:02 PM by Cheddar Stacker »

Cheddar Stacker

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Re: IRS announces 2015 contribution limits
« Reply #29 on: October 23, 2014, 07:12:24 PM »
 And I would keep a modified version of the corporate tax system in place. All businesses become c-corp and have to maintain books, file annual income taxes, and annual w-2's. All payments to individuals will now be reported on a modified version of the w-2 since it's all taxed the same at the individual level.

Corporate returns make sense on the surface, but all the special interest shit should be eliminated. No R&D credits and other non-sense. Only business expenses are deuctible. No meals. No entertainment. No expensive employee team building retreats in bora bora. No fluffy shit. Make your profit, pay your tax.

One big change, dividends paid to shareholders are deductible to the c-corp eliminating the double taxation.

Beric01

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Re: IRS announces 2015 contribution limits
« Reply #30 on: October 23, 2014, 07:20:21 PM »
Cheddar, your proposal makes too much sense (or at least would be a major improvement). I'm afraid you'd have no chance of being elected. ;)

sol

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Re: IRS announces 2015 contribution limits
« Reply #31 on: October 23, 2014, 07:29:02 PM »
One theory posits that an attempt to make the IRA limit equal to the 401(k) limit was quashed by the 401(k) industry.

Isn't that what the Roth401(k) is?

skyrefuge

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Re: IRS announces 2015 contribution limits
« Reply #32 on: October 23, 2014, 10:01:42 PM »
One theory posits that an attempt to make the IRA limit equal to the 401(k) limit was quashed by the 401(k) industry.

Isn't that what the Roth401(k) is?

Hmm? What is the "that" you're referring to? I'm not sure how the Roth 401(k) has anything to do with IRA contribution limits. Its contribution limit is the same as the traditional 401(k) contribution limit.

sol

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Re: IRS announces 2015 contribution limits
« Reply #33 on: October 23, 2014, 10:08:16 PM »
Hmm? What is the "that" you're referring to? I'm not sure how the Roth 401(k) has anything to do with IRA contribution limits. Its contribution limit is the same as the traditional 401(k) contribution limit.

When sobezen asked why the IRA limits are not the same as the 401k limit, I assumed he was asking why the tax free investment space was so much smaller than the tax-deferred investment space.   I was merely pointing out that it is not, and they are the same size, since the recent introduction of the Roth401k.

Does anyone know why IRA limits are not the same as 401k limits? Apologies if this was answered already. Thanks.

skyrefuge

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Re: IRS announces 2015 contribution limits
« Reply #34 on: October 24, 2014, 09:27:35 AM »
When sobezen asked why the IRA limits are not the same as the 401k limit, I assumed he was asking why the tax free investment space was so much smaller than the tax-deferred investment space.

Not sure why you'd see the word "IRA" and assume "Roth", but see the word "401(k)" and assume "traditional". I guess maybe it's because most talk about IRAs here refers to Roth IRAs, while most talk about 401(k)s refers to traditional 401(k)s? I don't think that's because people *want* Roth IRA or Roth 401(k)s (we've established here that traditional, tax-deferred accounts are likely to be more optimal for most Mustachians), it's because the income limits for traditional IRAs are so low (when covered by a 401(k) plan) that many Mustachians are left with the Roth IRA as the only option.

Which, now that you bring it up, is another interesting twist in the history of the 401(k). Apparently at some point as the 401(k) started getting more popular, Congress or the IRS must have decided "we don't want (rich) people to have both tax-deferred opportunities, so we'll shunt them over to the 401(k)".

Druid

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Re: IRS announces 2015 contribution limits
« Reply #35 on: October 24, 2014, 10:11:07 AM »
Traditional IRA's should just be eliminated and financial services companies like Vanguard should be able to offer "401k"s to customers who aren't offered them through their employers(similar to those people who are self employed). Employers without 401k's can just take out less taxes to compensate for the estimated contributions to the employee managed plan. I will let someone more qualified than me determine if the 401k limit should be increased with the elimination of the traditional IRA.

I wonder what the impact on the "retirement crises" would be if retirement accounts were tax free on both ends? Perhaps this would create a greater incentive for more people to save and Congress could either make up for the loss of tax revenues through lower 401k limits for the self employed and/or a less costly social security system.

It is unfortunate that the IRA limit is not the same as the 401(k). But this social injustice goes further:

Person with assumed lower paying non-corporate job(no 401k), lets use a coal miner making $50,000 a year as an example, can contribute $5,500 to retirement tax free.

Person with assumed higher paid corporate job with 401(k), lets say for sake of argument a stock broker making $100,000 a year, can contribute $18,000 a year to retirement tax free

Self-employed individual making $200,000, who hates puppies and yells at children, can contribute $52,000 tax free a year.
« Last Edit: October 24, 2014, 10:44:33 AM by Druid »

johnhenry

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Re: IRS announces 2015 contribution limits
« Reply #36 on: October 24, 2014, 10:28:53 AM »
Traditional IRA's should just be eliminated and financial services companies like Vanguard should be able to offer "401k"s to customers who aren't offered them through their employers. I will let someone more qualified than me determine if the 401k limit should be increased with the elimination of the traditional IRA. I wonder what the impact of the "retirement crises" would be if retirement accounts were tax free on both ends? Perhaps this would create a greater incentive for more people to save and Congress could make up for the loss of tax revenues through lower 401k limits and/or a less costly social security system.

Agree on the first part.  In terms of fairness, there's no reason to tie this to employment (just like with insurance).  I can see why an employer would want to deal with one broker for all of it's employees, rather than sending paycheck deductions lots of different directions.  But even if the employer 401(k) remained employer-controlled, there's no reason to not just allow individuals who are self-employed or employed by company that doesn't provide retirement....to just fund an individual 401(k).  Set the 401(k) limit at $23k (18k + 5k), eliminate the T. IRA,  and let everyone with earned income defer income on their own or through their employer plan.  This would also benefit people who weren't happy with the funds offered by their employer sponsored program.

Sorry... have to call BS on the concern of Congress over tax revenue.  We create the money we need.  We "tax" it back from people as a way to ensure fair contribution of each citizen to the group and to ensure there is a broad demand for money.... NOT to fund anything.  Money has to get created before it can get returned as tax, NOT taxed before it can get spent!!  So there is no rational reason for Congress to worry about the loss of tax revenue.
« Last Edit: October 24, 2014, 12:03:55 PM by johnhenry »

sobezen

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Re: IRS announces 2015 contribution limits
« Reply #37 on: October 24, 2014, 10:39:18 AM »
Hmm? What is the "that" you're referring to? I'm not sure how the Roth 401(k) has anything to do with IRA contribution limits. Its contribution limit is the same as the traditional 401(k) contribution limit.

When sobezen asked why the IRA limits are not the same as the 401k limit, I assumed he was asking why the tax free investment space was so much smaller than the tax-deferred investment space.   I was merely pointing out that it is not, and they are the same size, since the recent introduction of the Roth401k.

Does anyone know why IRA limits are not the same as 401k limits? Apologies if this was answered already. Thanks.

That is correct sol. I am unclear why the limits for an IRA in 2014 is only $5,500 versus the $17,500 limit in the 401k (tax deferred or Roth401k). I am curious because not all employers offers a 401k to employees. I know I could not contribute into a 401k at my first two employers. Thank you for explaining further.

teen persuasion

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Re: IRS announces 2015 contribution limits
« Reply #38 on: October 24, 2014, 10:41:35 AM »
Traditional IRA's should just be eliminated and financial services companies like Vanguard should be able to offer "401k"s to customers who aren't offered them through their employers. Employers without 401k's can just take out less taxes to compensate for the estimated contributions to the employee managed plan. I will let someone more qualified than me determine if the 401k limit should be increased with the elimination of the traditional IRA.

I wonder what the impact on the "retirement crises" would be if retirement accounts were tax free on both ends? Perhaps this would create a greater incentive for more people to save and Congress could either make up for the loss of tax revenues through lower 401k limits and/or a less costly social security system.

Actually, I'd prefer increasing the IRA limits to match 401k limits, and then eliminate the 401k option.  It is obviously better to have the option to open your accounts wherever you like, rather than be forced to only use the one option your employer offers.

Wait, scratch that.  Lowered wages on your W2 is better than IRA deductions after the fact.  DH's 401k contributions increase our eligibility for EITC.  IRA contributions do not.

I guess I want the best parts of each, rolled together and available to everyone, not just those with a big, generous employer: high limits, pre-tax deductions, choice in provider and funds.

fallstoclimb

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Re: IRS announces 2015 contribution limits
« Reply #39 on: October 29, 2014, 07:44:17 AM »
I am just beginning to max out my TSP -- so if the max is 18000/26 pay periods = 692.31 = $692 to max out?

juuustin

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Re: IRS announces 2015 contribution limits
« Reply #40 on: October 29, 2014, 08:27:37 AM »
I am just beginning to max out my TSP -- so if the max is 18000/26 pay periods = 692.31 = $692 to max out?

Talk to your HR.  They will tell you the exact amount to defer every week and then it is rounded for the last contribution on pay period 26.

Druid

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Re: IRS announces 2015 contribution limits
« Reply #41 on: October 29, 2014, 10:51:36 AM »
"Sorry... have to call BS on the concern of Congress over tax revenue.  We create the money we need.  We "tax" it back from people as a way to ensure fair contribution of each citizen to the group and to ensure there is a broad demand for money.... NOT to fund anything." 

I might be missing something here. From my understanding we don't just create the money we need. If we did then inflation would be increasing much faster than 2 percent. The money from the Fed is released into the
economy by lowering interest rates and buying back bonds not by writing Congress a check for funding the budget. 

We have a certain amount of money in the economy and if the government needs more money then it usually issues bonds or raises taxes. IRA's and 401(k) plans lower taxes received because they offset taxable income. If 401k contribution limits were lowered then the treasury department would receive more of our income, in the form of taxes, and would have more money to spend. It does not take our money, burn it, and then print more money. For example if there was no limit to 401k contributions and a taxpayer was able to put 100% away tax free then the government would not receive taxes from that person. This extreme demonstrates that if a large percentage of the economy was able to do this then our budget would be underfunded and we would have to issue more bonds as a result. Many economist, lets say 100%, would say this would result in a deficit. In a world where we "print what we need" there is no word for deficit, inflation, or deflation.

We(government) "tax" it back so that we can spend the money on missiles, education, and missiles. The government literally takes $20 out of my pocket and gives it to "Joe the job creator" for a partial payment for an aircraft carrier. 100% of the money collected from US citizens is released back into the economy in the years where our country is in a deficit. The rest of our expenses are paid for not by printing money, but by issuing bonds. Bonds bring money into the government not from the inside but through the outside(China for example). The fed also released money into the economy by buying back bonds not by funding the government. However if we bought back all of our obligations, by printing money, our currency would be worthless and inflation would increase in the double digits.

I do agree that a huge benefit to collecting taxes in US dollars is that it creates a certain level of demand for the currency. However I am really confused how a person can call "BS" on the fact that the money collected from taxes is not spent back into the economy to fund things. If that was the case then the government would either have to take the resources it needs to function, or would have to be 100% self sufficient by building its own aircraft carriers, buildings, etc. Not only that, every government employee would need to be slave labor.

The real way it works is that the government receives its own money in taxes and pays its employees for their services and pays independent contractors for most things. That is why government spending is used to boost the economy in a recession. Moreover if your "printing to funds things" theory was correct we would not owe China trillions of dollars. Sorry..... calling "BS" on someone should require a more detailed explanation of your logic especially when the original posters comment is backed by a degree in economics(disclaimer: 3.0 gpa so I am by no means an expert lol).

"Money has to get created before it can get returned as tax"......I agree with you on what "came first the chicken or the egg" comment :)
« Last Edit: October 29, 2014, 11:07:17 AM by Druid »

johnhenry

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Re: IRS announces 2015 contribution limits
« Reply #42 on: October 29, 2014, 01:25:24 PM »
Sorry..... calling "BS" on someone should require a more detailed explanation of your logic especially when the original posters comment is backed by a degree in economics(disclaimer: 3.0 gpa so I am by no means an expert lol).

Ahh.. Didn't realize I needed to post my credentials.  I do have a degree in economics (its a minor, hope that counts).  And a 4.0 GPA.  Not kidding.  Not that it matters.  Never been asked to show it before on a forum.

But if you need a more in-depth description than I can provide, these professional economists have an extensive primer here:
http://neweconomicperspectives.org/modern-monetary-theory-primer.html

We have a certain amount of money in the economy and if the government needs more money then it usually issues bonds or raises taxes.........The government literally takes $20 out of my pocket and gives it to "Joe the job creator" for a partial payment for an aircraft carrier.

That is the way it USED to work when our country and the rest of the world was on the gold standard.  Nearly all of your misinformation and misinterpretation of the way things really work now, stem from the fact that we have monetary policy, like issuing bonds, that are basically relics of the gold standard era.

But in those days there really was a "certain amount" of money in existence, as determined by the amount of gold.

Surely you can acknowledge that we are no longer on the gold standard????  If you acknowledge that, that dollars are just dollars, created by fiat.... then what sense does it make for a government to issue bonds or raise taxes to get more of it.  Seriously.  Think about it.  People pay their taxes and buy bonds with dollars, right?  Where do you think those things came from?? They had to come from somewhere.  If the government can only pay for an aircraft carrier after it gets a dollar from Joe, where did Joe get his dollar?  The one that you believe he's "loaning" to the government??

Bonds bring money into the government not from the inside but through the outside(China for example)........Moreover if your "printing to funds things" theory was correct we would not owe China trillions of dollars.
This doesn't make any sense!  Bonds are owned by whomever buys them.  US citizens own some, China owns some.  China buys them for the same reasons that US citizens buy them.  Because they have dollars.  They have dollars because (usually) they provided goods/services to someone and got paid with dollars.  They'd like to exchange those dollars for interest bearing assets.

"We" don't owe China trillions of dollars!!!  Who told you this and why did you believe it?  I'd love to hear the answer.

China has trillions of dollars.  It has dollars because it sells things to people with dollars (Americans).  And just like investors on this forum, Chinese businesses and the Chinese government aren't foolish enough to hold a portfolio of trillions of dollars in cash when it could hold a portfolio of interest-bearing bonds instead.


"Money has to get created before it can get returned as tax"......I agree with you on what "came first the chicken or the egg" comment :)

What??  So you are in agreement that money gets created??  But only after you insist that it isn't the government that creates it???  You'll have to explain to us how this money gets created before it gets used to buy bonds or pay taxes to fund the government.


It does not take our money, burn it, and then print more money.
Well, it's actually a lot more like this than you realize.  Since we pay our taxes with checks against bank accounts, the IRS does not have the need to actually destroy money.  But the point is, yes we do just "print" money, yes we do just "impose" tax, and yes we "destroy" money when we pay it back in taxes.
« Last Edit: October 29, 2014, 01:31:39 PM by johnhenry »

Druid

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Re: IRS announces 2015 contribution limits
« Reply #43 on: October 29, 2014, 06:11:10 PM »
My gpa comment was a joke, so there is no need to post your credentials and I didn't ask you for your gpa. Congrats on the 4.0! I assume you are also good with the ladies?

Thanks for the link I will likely not use it, since it is obvious that at least one of us doesn't know what were arguing about.

I wasn't arguing about where money comes from, so your last post was a waste of your time. Money is printed by the federal reserve. I had an issue with you saying that we do not fund anything with taxes, and then stating that my comment was "BS" out of nowhere without provocation.

We are off the gold standard, but again, this has nothing to do with anything in my original post and is only indirectly related to my second post. Most of your last post is an argument with you and yourself.

My bond comment makes sense because I used China as an example by using the words "for example". All of your comments about bonds and China do not conflict with anything that I said, since they are off topic. I admit, it wasn't my best sentence. When I said the money comes from outside I meant not from the federal reserve and not from government sources. Sure Us citizens buy them to!!! ;)

Perhaps I misinterpreted your comment but I thought your original point was that the government printed money to buy things and did not use taxes for that purpose. Because my original comment was based on congress potentially bringing down the 401k limit for the self employed, so that people with IRA can have higher deductions without creating a deficit due to lower tax revenue. This was a suggestion for one of the many ways that we can make up for the loss of tax revenue. Do you believe that there is a budget or do you think we print money to maintain the budget. I am having so much trouble trying to understand your initial argument :(

BELOW IS YOUR ORIGINAL COMMENT THAT I WISHED TO DEBATE(with my initial thoughts):

"Sorry... have to call BS on the concern of Congress over tax revenue(Yah Congress doesn't worry about tax revenue ....my bad)  We create the money we need(I guess this is a true statement, but it has nothing to do with my original comment about Congress).  We "tax" it back from people as a way to ensure fair contribution of each citizen(this sounds like our tax code...cough...NOT) to the group and to ensure there is a broad demand for money(taxes is one way the government creates demand for money;again nothing to do with my comment about Congress that is "BS").... NOT to fund anything(This comment is the heart of the argument. Taxes are used to fund most everything that is not paid for through borrowing).  Money has to get created before it can get returned as tax(i would never argue against this point, because its like saying that grass must be watered before it grows,a 2nd grader knows this), NOT taxed before it can get spent!!(The government may borrow money for it needs, but the government does also collect taxes before spending the revenue. This is the point I was arguing. You?)  So there is no rational reason for Congress to worry about the loss of tax revenue.(There is a rational reason its called balancing the budget and is one of the most important duties of Congress. Less revenue results in a greater deficit all things being equal.)"

Are we on the same page?
« Last Edit: October 29, 2014, 07:19:21 PM by Druid »

Allen

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Re: IRS announces 2015 contribution limits
« Reply #44 on: November 04, 2014, 05:24:33 AM »
So, what was the purpose of a 401k?

Reading the first 4 or 5 pages of the PDF I linked will probably explain it more accurately than me, but my interpretation is that section 401(k) was created as a compromise. In the 1950s, companies has figured out how to treat bonuses from profit-sharing programs as an "employer contribution" in order to defer income tax. Congress wasn't a big fan of this, and probably would have preferred to quash the behavior entirely, but, presumably due to backlash from the rich executives benefiting from the tax-deferral, compromised, and in 1978 came up with section 401(k) as a means to at least regulate the practice more tightly. It was considered such a rare and obscure tax loophole that at the time it was created, Congress apparently estimated that the loss in tax revenue would be "negligible".

In 1981, the IRS created regulations that allowed contributions from ordinary wages, not just from profit-sharing, and the popularity of 401(k)s as a normal retirement savings account starting taking off from there.

Holy smokes. Trickle down economics worked once! :)

johnhenry

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Re: IRS announces 2015 contribution limits
« Reply #45 on: November 05, 2014, 08:35:25 AM »
BELOW IS YOUR ORIGINAL COMMENT THAT I WISHED TO DEBATE(with my initial thoughts):

"Sorry... have to call BS on the concern of Congress over tax revenue(Yah Congress doesn't worry about tax revenue ....my bad)  We create the money we need(I guess this is a true statement, but it has nothing to do with my original comment about Congress).  We "tax" it back from people as a way to ensure fair contribution of each citizen(this sounds like our tax code...cough...NOT) to the group and to ensure there is a broad demand for money(taxes is one way the government creates demand for money;again nothing to do with my comment about Congress that is "BS").... NOT to fund anything(This comment is the heart of the argument. Taxes are used to fund most everything that is not paid for through borrowing).  Money has to get created before it can get returned as tax(i would never argue against this point, because its like saying that grass must be watered before it grows,a 2nd grader knows this), NOT taxed before it can get spent!!(The government may borrow money for it needs, but the government does also collect taxes before spending the revenue. This is the point I was arguing. You?)  So there is no rational reason for Congress to worry about the loss of tax revenue.(There is a rational reason its called balancing the budget and is one of the most important duties of Congress. Less revenue results in a greater deficit all things being equal.)"

Are we on the same page?

Sorry, we aren't yet on the same page. 

You acknowledge the main point, which is that we (the Federal Reserve with direction from law created by Congress) create money before it can returned as tax.

But you can't seem to grasp the logic that a sovereign government that creates money has no need to borrow or tax to fund spending.  In fact, it's a complete misnomer to use the word borrow in this context.  It is impossible to "borrow" something that you can just create instead.  Yes, we choose to pay interest to bondholders.  This is a "savings incentive" program for those who hold dollars and wish to trade them for bonds, not a borrowing program to finance government spending.

Quote
The government may borrow money for it needs, but the government does also collect taxes before spending the revenue. This is the point I was arguing. You?

What needs?  It's need for money??  You already acknowledged it's ability to create money, why would it borrow!?!?!  As I said above: It doesn't, and in fact it CAN'T.  It does not spend "revenue".  It spends money it creates.

You do still have it completely backwards.  Just once sentence earlier you said that any second grader knows that money gets created before it can get returned as tax.  And this sentence says "but the government does also collect tax before spending the revenue".  Surely you realize it can't be both ways!!

You have indeed arrived at the crux of the issue.  You need to sit down, apply some logic, and figure out which really gets done first: money creation or taxing. Your understanding will follow.

I'm hesitant to use the word ILLUSION because it will conjure up rebuttals of conspiracy theories.  Misconception is probably a better word.  It is a misconception on your part that taxes and borrowing fund spending.  Yes taxes get paid by citizens with money, but that doesn't mean that the taxes they pay fund any spending.  And yes, we choose to motivate saving by paying interest on bonds.  That DOES mean that some of the money we create is used to pay interest to those who hold bonds.  But it DOES NOT mean that the money used to buy the bonds is used to fund spending/creation of money.

In response to your statement about balancing the budget.  It's "rational" for a currency user to balance it's budget so that it remains solvent.  There is no such solvency constraint on a currency issuer.  Therefore it is not "rational" for Congress to balance the budget, nor is it one of their most important duties.


Druid

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Re: IRS announces 2015 contribution limits
« Reply #46 on: November 09, 2014, 04:14:43 PM »
Maybe someone else can comment on this argument, because we are not going to get anywhere without one of us reading new information from a reliable source. I am currently studying a different area of interest, so I won't be allocating additional time to research whether or not I am wrong.