Author Topic: Biden wants big 401k changes  (Read 10879 times)

Poundwise

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Re: Biden wants big 401k changes
« Reply #50 on: August 26, 2020, 10:34:24 PM »
I'm retired, so this potential change doesn't appear to affect us.  It has already been said, but ideas like this is just that, an idea.  There are a lot of obstacles to overcome to pass such a significant change.  If I understand correctly, the change only affects the pre-tax nature of initial investment funds. I understand the general intent, but I don't understand why they can't make another optional type of 401k program for lower income earners with tax credits instead of pre-tax.  Once a tax payer moves into a higher income situation, they could switch to the "traditional" 401k system.  Maybe it could be annual selection for which 401k you would prefer to participate in.  It would be a bigger cost for administration by employers, but it could be a nice compromise.

This is why the current system is such a maze: Oh, let's just add on another option, with a completely separate set of rules. And we will probably forget something that will turn into a loophole for the wealthiest to exploit.

As far as tax fairness is concerned, I feel the best way to address this concern is with a flat tax income rate.

We can have fair, we can have simple, but not usually both.  If we had all started out truly created equal-- in situation, abilities, wealth, and advantages, not just in rights-- a flat tax rate might be fine.  But such is not the case.

What do we want from taxes? It comes down to what we want for our country.  As I have been thinking about it, I want all the people in the community around me to be peaceful and prosperous, I want security and a certain amount of predictability so I can do my thing. I don't want to be bombarded with gofundmes for people's medical care and donorschooses for school supplies, yada yada, I just want to contribute a predictable amount towards these things and for the community to get good value for our joint expenditures.  I would guess that most other people and businesses want the same.

We could pay "fair", simple taxes, but because there is so much income inequality, the rates would be limited by the lower end incomes of taxpayers, and wouldn't be sufficient to cover the current needs of our country.

Meanwhile, at the upper end, higher percentage taxation would be very little felt. https://neal.fun/spend/

Hence, progressive taxes.




Monerexia

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Re: Biden wants big 401k changes
« Reply #51 on: August 26, 2020, 11:16:41 PM »
This would at a stroke be the worst of times and the best of times. It would be like getting fired from my reliable gig--it would force me to invest more in promotion and building my other business--that money is deductible and also not subject to the 15.3. So this is simply an AA problem. 

Monerexia

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Re: Biden wants big 401k changes
« Reply #52 on: August 26, 2020, 11:41:15 PM »
However, my personal opinion on what to do doesn't fall into any of those categories from what those articles or others say.  Way too many studies have shown that people just don't / can't / won't save for retirement no matter what (its amazing how many people don't even use their 401k enough to get the free employer match...), so any program that requires the person to do anything will fail for a lot of people.  That's why I (sadly...) think the only way to guarantee people can retire is just to lower 401k benefits / lower IRA benefits / lower pension special tax status / etc, and use that money to increase Social Security across the board, since SS is the primary income source for a boatload of people.   

You can lead a horse to water, but you can't make it drink.

I have over 100 Soldiers in my National Guard unit. When we were preparing to deploy a year ago I conducted multiple classes on finances to try and pound into their heads the importance of setting up their TSP (Government 401k plan) even if it was just contributing 1% - especially if they were in the small group that switched to the new retirement plan that included a 5% employer match with a 5% contribution. Also, urging them not to blow all the money they earned on buying a new truck or other lifestyle inflation but to use it to pay off debt, invest, or save for goals like buying a house.

For most of my Soldiers their income while deployed is significantly higher than they made before - especially when you consider that a significant chunk is non-taxable (housing allowance which is generally $1,000 - $1,500/month) and while we're deployed there's no income tax (still take out 7.65% payroll taxes on base pay). In addition, you can deposit up to $10,000 in the Savings Deposit Program which pays 10% annual interest, compounded monthly while you're deployed and for three months after.

Based on multiple conversations and some informal surveys I would estimate perhaps 1/3 contributed to their TSP (generally a small amount of 1-2%) and maybe 5-10% contributed to the SDP. That was with me beating the drum for both of those programs in formations and in one on one conversations. I suspect other units that didn't put the same command influence on these programs would have even lower participation. I had a few Soldiers ask me questions and say they were contributing 5-10% or actually thinking about their long-term future. But unfortunately for most, it's in one ear and out the other.

Yep that's the problem--change the rules and hurt people who are saving and the ones that they are trying to help with this wrong-headed nonsense will have no interest in stepping up and taking advantage of it. I hope they just leave me alone for another four years, four years, four years c'mon guys just kick the can down the road haha

seattlecyclone

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Re: Biden wants big 401k changes
« Reply #53 on: August 26, 2020, 11:58:06 PM »
I just wanted to add to the discussion because I found this to be an interesting topic. I'm 25 and my MAGI last year was roughly $86,000. I donated $3,000 to charity and when I went to do my taxes, discovered that the standard deduction is so large now that the itemized deduction option is worse than taking the standard deduction. The charitable contributions had no tax benefits. Thoughts on this?

This is a well known feature/bug of the changes. There was much concern about the effect it might have on giving. Never saw any follow up and I believe people are giving plenty this year.

Yes, by increasing the standard deduction amounts and decreasing the amount of itemized deductions (capping state/local tax at $10,000 is a big one for a lot of former itemizers), the number of people itemizing has gone down quite a bit. As with other tax deductions, the higher earners got a bigger discount on their charity than lower earners. Will they write slightly smaller checks to compensate? Maybe! Hard to say. It does create more of an incentive to bunch donations into one year (such as through a donor advised fund) so that they can still deduct most of it. For the vast majority of Americans who didn't itemize before and/or were in low tax brackets, this doesn't change their incentive structure much. These folks don't write huge checks but they make up for it with their large numbers.

The CARES Act does add a 2020-only $300 deduction against charitable contributions for people who claim the standard deduction.

js82

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Re: Biden wants big 401k changes
« Reply #54 on: August 27, 2020, 04:49:56 AM »
For the bulk of large 401k contributors, this is a "nothing-burger", as they say these days.

Quote
Biden would instead “equalize” the incentive system by ending such deductions and replacing them with flat tax credits for each dollar saved. The campaign isn’t saying what that percentage would be, but the Urban-Brookings Tax Policy Center has estimated a 26 percent credit would be roughly revenue neutral over the first 20 years and beyond, which the Biden campaign is aiming for.


This means that if you're in the 22% or 24% tax brackets(a majority of people who are making decent-sized contributions to 401k's), it's a tiny net plus for you.  If you're in the 10%/12% bracket, it's a larger plus - but with the exception of highly-frugal individuals toward the top of the 12% bracket, most people in the 10/12% brackets aren't maxing out their 401k's. 

i.e. if your income is below $163k(single) or $326k(family) you'll get a larger tax deduction.  If your income is above that you'll get a smaller deduction/have to pay more taxes.  163k/326k  income is 95th-97th percentile in this country, so it's negatively affecting a very small slice of the population who are doing quite well already.

We can have fair, we can have simple, but not usually both.  If we had all started out truly created equal-- in situation, abilities, wealth, and advantages, not just in rights-- a flat tax rate might be fine.  But such is not the case.

What do we want from taxes? It comes down to what we want for our country.  As I have been thinking about it, I want all the people in the community around me to be peaceful and prosperous, I want security and a certain amount of predictability so I can do my thing. I don't want to be bombarded with gofundmes for people's medical care and donorschooses for school supplies, yada yada, I just want to contribute a predictable amount towards these things and for the community to get good value for our joint expenditures.  I would guess that most other people and businesses want the same.

We could pay "fair", simple taxes, but because there is so much income inequality, the rates would be limited by the lower end incomes of taxpayers, and wouldn't be sufficient to cover the current needs of our country.

Meanwhile, at the upper end, higher percentage taxation would be very little felt. https://neal.fun/spend/

Hence, progressive taxes.

You're making the mistake of suggesting that the majority of complexity comes from multiple income brackets.  That's a couple pages in our tax codes.  Most of the complexity comes from the dizzying array of special-interest deductions and exceptions, very few of which actually make our tax code fairer/reduce inequality.
« Last Edit: August 27, 2020, 04:58:03 AM by js82 »

rantk81

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Re: Biden wants big 401k changes
« Reply #55 on: August 27, 2020, 05:44:36 AM »
For the bulk of large 401k contributors, this is a "nothing-burger", as they say these days.

Quote
Biden would instead “equalize” the incentive system by ending such deductions and replacing them with flat tax credits for each dollar saved. The campaign isn’t saying what that percentage would be, but the Urban-Brookings Tax Policy Center has estimated a 26 percent credit would be roughly revenue neutral over the first 20 years and beyond, which the Biden campaign is aiming for.


This means that if you're in the 22% or 24% tax brackets(a majority of people who are making decent-sized contributions to 401k's), it's a tiny net plus for you.  If you're in the 10%/12% bracket, it's a larger plus - but with the exception of highly-frugal individuals toward the top of the 12% bracket, most people in the 10/12% brackets aren't maxing out their 401k's. 

i.e. if your income is below $163k(single) or $326k(family) you'll get a larger tax deduction.  If your income is above that you'll get a smaller deduction/have to pay more taxes.  163k/326k  income is 95th-97th percentile in this country, so it's negatively affecting a very small slice of the population who are doing quite well already.

I completely agree with your assessment -- that's how I viewed it after reading the Forbes article.  It has some minor tweaks around the edges, but isn't really that big of an impact for the vast majority of taxpayers.  It seems like the intent is to allow for a bigger benefit for low-income folks... Sounds like that could be accomplished a whole lot easier by making the "Savers Credit" a bit more generous, potentially.
« Last Edit: August 27, 2020, 05:55:55 AM by rantk81 »

Much Fishing to Do

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Re: Biden wants big 401k changes
« Reply #56 on: August 27, 2020, 06:59:10 AM »
The change I always thought should and could easily be made was much simpler, to just to allow everyone to put at least $20k (or whatever the 401k limit is) in retirement accounts.  It always seemed ironic to me that all the years a had a crappy job (which as crappy jobs do, often means no 401k plan at all) I was limited the much much lower IRA max.  When I got a good job and made more money I had a 401k with the higher limit avail to me.  A great job (which I never got) would then have added in a match on top.  When I had my best paying job by far (owned a small business) I was allowed to save a ton in a solo 401k.

I guess I just never understood why the IRA limits wouldn't allow for someone to save the same amount as someone with a 401k if they didn't have access to one.  Its really an extension of my thoughts re: 401ks overall, that I don't get the point why they exist at all (retirement accounts attached to your workplace) as opposed to just having IRAs/Roth IRAs with good maximums that you can control yourself like all your other money.  But I do understand the counterargument that 401ks can in fact increase retirement savings of those that otherwise wouldn't because its made so easy to join and now of things like the automatic opt in etc.

Sugaree

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Re: Biden wants big 401k changes
« Reply #57 on: August 27, 2020, 07:05:20 AM »
I definitely don't hate the idea of credits vs. deductions.  I make $75k and max out my traditional TSP.  Yes, I know I'm not what would be considered normal.  I also live in a super LCOLA where the median income is closer t $45k.  So, not counting any other deductions like HSA or pre-tax insurance under the current system, my tax bill this year would be about $4065 after the child tax credit and the saver's credit.  Under a system where the current contribution levels were kept as-is, but you got credits as opposed to deductions, my bill would be more like $1730 after the child tax credit and the 25% credit on contributions.  In the less than ideal case that contributions were limited to 20% of my earnings, it would be more like $2855 and the excess would go into my brokerage account. 

If they really want to even the playing field, TPTB need to look into some kind of universal 401k plan or vastly increase the contribution limits for people whose job doesn't offer one.  It's absolute bullshit that if you've got a great job with a 401k you can shelter $25k+ every year, but if you're working part time or for an employer who sucks then you are limited to $6k.

ericrugiero

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Re: Biden wants big 401k changes
« Reply #58 on: August 27, 2020, 07:19:06 AM »
The change I always thought should and could easily be made was much simpler, to just to allow everyone to put at least $20k (or whatever the 401k limit is) in retirement accounts.  It always seemed ironic to me that all the years a had a crappy job (which as crappy jobs do, often means no 401k plan at all) I was limited the much much lower IRA max.  When I got a good job and made more money I had a 401k with the higher limit avail to me.  A great job (which I never got) would then have added in a match on top.  When I had my best paying job by far (owned a small business) I was allowed to save a ton in a solo 401k.

+1 

It would hurt many of us who are saving and have good jobs but the playing field should really be level.  Set a cap of $XX,XXX total that applies to all tax advantaged retirement accounts.  Let people choose whether to put that money into IRA, 401K, 403B, etc.  Having some people eligible for $6K and others for ~$50K is absurd.  At the end of the day, the differences between these types of accounts are small.  Shouldn't the limits be the same? 

Steeze

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Re: Biden wants big 401k changes
« Reply #59 on: August 27, 2020, 07:28:59 AM »
Really - just get rid of the 401k / 403B / Roth all together - Increase the IRA max contribution to $xx,xxx, make the deduction a credit, and get rid of the income limits. Simplify the whole thing.

Buffaloski Boris

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Re: Biden wants big 401k changes
« Reply #60 on: August 27, 2020, 07:32:04 AM »
It's bugged me for YEARS that people earning high incomes (and thus with an easier time saving in 401ks) ALSO get a bigger tax benefit. I'd absolutely support the change to a tax credit.  My husband and I have regularly discussed how much many parts of the society are stacked against the financial progress of people who need it most, and stacked in favor of people (like us) who are already over the really tough part of the personal financial 'hump'.  This would be one little blow against that unfairness.
Oh bullshit.

The full cost of government spending for an American (federal, state, local) is about $15,000 per year, for every year of their life, which is about 80 years.

The vast, vast majority of Americans will never pay anywhere near what they cost society at large. And that's fine. But saying the deck is stacked against them is populist garbage.

Sometimes these forums feel like a Bernie pep rally. This is a proposed tax hike by any other name. Those who could benefit from the change likely won’t choose to or won’t be able to. While those who wouldn’t benefit would get effectively higher taxes just the same. It won’t be “revenue neutral” by any stretch of the imagination.

I find this idea that taxes should be raised to be repugnant and hypocritical. It seems that those who are looking for tax hikes usually (but not always) want someone else to get the shaft. Don’t tax you, don’t tax me, tax that guy behind the tree! That’s not the way it works. The folks at the very top of the economic heap have the lawyers, the tax accountants and the necessary corporate structures to avoid taxes. So the burden usually ends up falling on the upper middle class and lower upper class who have the income, but not the advanced means to avoid taxes. Said another way, it’s folks in our midst who are going to get taxed. And younger people. Oddly enough there are some folks here who still think that’s great, at least in theory.

So I have a challenge. Those who really like paying taxes shouldn’t wait for a tax hike. The Federal government, all the states, and most all localities will happily accept cash donations. So open up those checkbooks and donate generously! And it doesn’t even need to be your state. If you think that Vermont or New York State or Illinois are just dreamy, then send them some love! And nothing says “I love you!” quite like cold, hard cash.

Hmmm. Somehow I don’t think many folks are going to open their own checkbooks. Because when it comes to taxes, “generous contributions” are for the other guy.

bmjohnson35

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Re: Biden wants big 401k changes
« Reply #61 on: August 27, 2020, 07:34:37 AM »
This is why the current system is such a maze: Oh, let's just add on another option, with a completely separate set of rules. And we will probably forget something that will turn into a loophole for the wealthiest to exploit.
[/quote]
[/quote]

As far as tax fairness is concerned, I feel the best way to address this concern is with a flat tax income rate.

We can have fair, we can have simple, but not usually both.  If we had all started out truly created equal-- in situation, abilities, wealth, and advantages, not just in rights-- a flat tax rate might be fine.  But such is not the case.

What do we want from taxes? It comes down to what we want for our country.  As I have been thinking about it, I want all the people in the community around me to be peaceful and prosperous, I want security and a certain amount of predictability so I can do my thing. I don't want to be bombarded with gofundmes for people's medical care and donorschooses for school supplies, yada yada, I just want to contribute a predictable amount towards these things and for the community to get good value for our joint expenditures.  I would guess that most other people and businesses want the same.

We could pay "fair", simple taxes, but because there is so much income inequality, the rates would be limited by the lower end incomes of taxpayers, and wouldn't be sufficient to cover the current needs of our country.

Meanwhile, at the upper end, higher percentage taxation would be very little felt. https://neal.fun/spend/

Hence, progressive taxes.
[/quote]

It has been a while, but the last time I read up on this topic, a flat rate tax would actually increase taxes collected, especially as it pertains to businesses.  I believe the recommendation was a 10% rate.  It reduces cost of administration for everyone involved.  I'm not sure how retirement investing would be handled......I don't remember reading about this aspect of flat tax.

Davnasty

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Re: Biden wants big 401k changes
« Reply #62 on: August 27, 2020, 07:35:54 AM »
So basically this is to punish you for saving too much. I see young people all the time saying the deck is stacked against them and that old people who got rich under the old rules are now changing the rules to harm young people. This is a great example. Old people are drafting laws to raise income taxes that they won't ever pay, but young people will. Meanwhile Bezos just surpassed $200 billion. I understand why there's nightly protests all over America, being young is a crime.

This would be a tax benefit for 97% of US households. More so for younger people as they tend to earn less.

Do you know what policy is being discussed?

EscapeVelocity2020

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Re: Biden wants big 401k changes
« Reply #63 on: August 27, 2020, 08:14:47 AM »
It's bugged me for YEARS that people earning high incomes (and thus with an easier time saving in 401ks) ALSO get a bigger tax benefit. I'd absolutely support the change to a tax credit.  My husband and I have regularly discussed how much many parts of the society are stacked against the financial progress of people who need it most, and stacked in favor of people (like us) who are already over the really tough part of the personal financial 'hump'.  This would be one little blow against that unfairness.
Oh bullshit.

The full cost of government spending for an American (federal, state, local) is about $15,000 per year, for every year of their life, which is about 80 years.

The vast, vast majority of Americans will never pay anywhere near what they cost society at large. And that's fine. But saying the deck is stacked against them is populist garbage.

Sometimes these forums feel like a Bernie pep rally. This is a proposed tax hike by any other name. Those who could benefit from the change likely won’t choose to or won’t be able to. While those who wouldn’t benefit would get effectively higher taxes just the same. It won’t be “revenue neutral” by any stretch of the imagination.

I find this idea that taxes should be raised to be repugnant and hypocritical. It seems that those who are looking for tax hikes usually (but not always) want someone else to get the shaft. Don’t tax you, don’t tax me, tax that guy behind the tree! That’s not the way it works. The folks at the very top of the economic heap have the lawyers, the tax accountants and the necessary corporate structures to avoid taxes. So the burden usually ends up falling on the upper middle class and lower upper class who have the income, but not the advanced means to avoid taxes. Said another way, it’s folks in our midst who are going to get taxed. And younger people. Oddly enough there are some folks here who still think that’s great, at least in theory.

So I have a challenge. Those who really like paying taxes shouldn’t wait for a tax hike. The Federal government, all the states, and most all localities will happily accept cash donations. So open up those checkbooks and donate generously! And it doesn’t even need to be your state. If you think that Vermont or New York State or Illinois are just dreamy, then send them some love! And nothing says “I love you!” quite like cold, hard cash.

Hmmm. Somehow I don’t think many folks are going to open their own checkbooks. Because when it comes to taxes, “generous contributions” are for the other guy.

I understand your point, and similar things are said every time raising taxes comes up, but you also miss / don't address the fundamental issue which is that the tax system as it currently stands could be made more fair.  I remember how hard it was to max out the 401k when my wife and I barely made any money, and nowadays I max out the 401k just because it is pre-tax and it's already income I don't need.  It's probably also extra retirement savings I don't need, but I'll worry that when RMD's kick in.  There are quite a lot of strange quirks in the tax code that could be sorted out (like capping social security contributions), but this looks like a fairly straightforward one that I could get behind.  It will likely help my kids when they are starting out.

Given the national debt mess that we are digging and that we were running 1T deficits prior to the pandemic, I think our Trump tax cuts are going to be short lived either way.

Was there anything specifically about this change that made you dislike it more or are you just opposed to any tax increase?

bigblock440

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Re: Biden wants big 401k changes
« Reply #64 on: August 27, 2020, 08:36:24 AM »
The change I always thought should and could easily be made was much simpler, to just to allow everyone to put at least $20k (or whatever the 401k limit is) in retirement accounts.  It always seemed ironic to me that all the years a had a crappy job (which as crappy jobs do, often means no 401k plan at all) I was limited the much much lower IRA max.  When I got a good job and made more money I had a 401k with the higher limit avail to me.  A great job (which I never got) would then have added in a match on top.  When I had my best paying job by far (owned a small business) I was allowed to save a ton in a solo 401k.

I guess I just never understood why the IRA limits wouldn't allow for someone to save the same amount as someone with a 401k if they didn't have access to one.  Its really an extension of my thoughts re: 401ks overall, that I don't get the point why they exist at all (retirement accounts attached to your workplace) as opposed to just having IRAs/Roth IRAs with good maximums that you can control yourself like all your other money.  But I do understand the counterargument that 401ks can in fact increase retirement savings of those that otherwise wouldn't because its made so easy to join and now of things like the automatic opt in etc.

Personally, a 401k was the only reason I had anything invested in my 20's.  I would have never done it on my own if I didn't get a company match, and it was easy to just ignore it.  I just didn't know any better then.  I didn't even open my first IRA until this February.  Though I agree, limits should be comparable for the two, I don't understand why they're not.

Sanitary Engineer

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Re: Biden wants big 401k changes
« Reply #65 on: August 27, 2020, 01:01:41 PM »
It's bugged me for YEARS that people earning high incomes (and thus with an easier time saving in 401ks) ALSO get a bigger tax benefit. I'd absolutely support the change to a tax credit.  My husband and I have regularly discussed how much many parts of the society are stacked against the financial progress of people who need it most, and stacked in favor of people (like us) who are already over the really tough part of the personal financial 'hump'.  This would be one little blow against that unfairness.
Oh bullshit.

The full cost of government spending for an American (federal, state, local) is about $15,000 per year, for every year of their life, which is about 80 years.

The vast, vast majority of Americans will never pay anywhere near what they cost society at large. And that's fine. But saying the deck is stacked against them is populist garbage.

Sometimes these forums feel like a Bernie pep rally. This is a proposed tax hike by any other name. Those who could benefit from the change likely won’t choose to or won’t be able to. While those who wouldn’t benefit would get effectively higher taxes just the same. It won’t be “revenue neutral” by any stretch of the imagination.

I find this idea that taxes should be raised to be repugnant and hypocritical. It seems that those who are looking for tax hikes usually (but not always) want someone else to get the shaft. Don’t tax you, don’t tax me, tax that guy behind the tree! That’s not the way it works. The folks at the very top of the economic heap have the lawyers, the tax accountants and the necessary corporate structures to avoid taxes. So the burden usually ends up falling on the upper middle class and lower upper class who have the income, but not the advanced means to avoid taxes. Said another way, it’s folks in our midst who are going to get taxed. And younger people. Oddly enough there are some folks here who still think that’s great, at least in theory.

So I have a challenge. Those who really like paying taxes shouldn’t wait for a tax hike. The Federal government, all the states, and most all localities will happily accept cash donations. So open up those checkbooks and donate generously! And it doesn’t even need to be your state. If you think that Vermont or New York State or Illinois are just dreamy, then send them some love! And nothing says “I love you!” quite like cold, hard cash.

Hmmm. Somehow I don’t think many folks are going to open their own checkbooks. Because when it comes to taxes, “generous contributions” are for the other guy.

I should probably preface my tax preferences with some kind of scale of wealth with a clear demarcation of what level of wealth is too much, in my opinion.
 What is the wealth cut off for where I think a person goes from a decent human being to a completely greedy poop skid.  $500 million?  $100 million?  And how exactly does one determine the true level of wealth at which to start eating the rich?

As far as opening my own checkbooks, I am deeply attached to the $6,000 dollars I plan to save this year, but if it can be leveraged for stealing back a greater share of the upper echelon of greedy shit stain's wealth, then I'll give it up. 

In truth, I have been thinking about what I would think of increasing taxes were I among the lucky few that does pay tax to the federal government.  I suspect I would not like it so much.  However, I do like an increase to the payroll tax and I would actually have to pay that one at my current position in the upper lower middle class.

Buffaloski Boris

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Re: Biden wants big 401k changes
« Reply #66 on: August 27, 2020, 01:34:34 PM »
This is why the current system is such a maze: Oh, let's just add on another option, with a completely separate set of rules. And we will probably forget something that will turn into a loophole for the wealthiest to exploit.

That's a feature, not a bug.

mm1970

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Re: Biden wants big 401k changes
« Reply #67 on: August 27, 2020, 02:21:34 PM »
I just wanted to add to the discussion because I found this to be an interesting topic. I'm 25 and my MAGI last year was roughly $86,000. I donated $3,000 to charity and when I went to do my taxes, discovered that the standard deduction is so large now that the itemized deduction option is worse than taking the standard deduction. The charitable contributions had no tax benefits. Thoughts on this?

This is a well known feature/bug of the changes. There was much concern about the effect it might have on giving. Never saw any follow up and I believe people are giving plenty this year.

Yes, by increasing the standard deduction amounts and decreasing the amount of itemized deductions (capping state/local tax at $10,000 is a big one for a lot of former itemizers), the number of people itemizing has gone down quite a bit. As with other tax deductions, the higher earners got a bigger discount on their charity than lower earners. Will they write slightly smaller checks to compensate? Maybe! Hard to say. It does create more of an incentive to bunch donations into one year (such as through a donor advised fund) so that they can still deduct most of it. For the vast majority of Americans who didn't itemize before and/or were in low tax brackets, this doesn't change their incentive structure much. These folks don't write huge checks but they make up for it with their large numbers.

The CARES Act does add a 2020-only $300 deduction against charitable contributions for people who claim the standard deduction.
Are we in some sort of weird hole?  We are in California, so the tax changes moved us from itemization to standard deduction.  As planned?

Our taxes went down.  Meaning, we got a refund 2 years in a row.  We earned $40,000 year over year when that change was made, but only paid ~4000 or 5000 more in taxes.  That means our total tax rate went down...

mm1970

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Re: Biden wants big 401k changes
« Reply #68 on: August 27, 2020, 02:25:29 PM »
Quote
Sometimes these forums feel like a Bernie pep rally. This is a proposed tax hike by any other name. Those who could benefit from the change likely won’t choose to or won’t be able to. While those who wouldn’t benefit would get effectively higher taxes just the same. It won’t be “revenue neutral” by any stretch of the imagination.

I find this idea that taxes should be raised to be repugnant and hypocritical. It seems that those who are looking for tax hikes usually (but not always) want someone else to get the shaft. Don’t tax you, don’t tax me, tax that guy behind the tree! That’s not the way it works. The folks at the very top of the economic heap have the lawyers, the tax accountants and the necessary corporate structures to avoid taxes. So the burden usually ends up falling on the upper middle class and lower upper class who have the income, but not the advanced means to avoid taxes. Said another way, it’s folks in our midst who are going to get taxed. And younger people. Oddly enough there are some folks here who still think that’s great, at least in theory.

So I have a challenge. Those who really like paying taxes shouldn’t wait for a tax hike. The Federal government, all the states, and most all localities will happily accept cash donations. So open up those checkbooks and donate generously! And it doesn’t even need to be your state. If you think that Vermont or New York State or Illinois are just dreamy, then send them some love! And nothing says “I love you!” quite like cold, hard cash.

Hmmm. Somehow I don’t think many folks are going to open their own checkbooks. Because when it comes to taxes, “generous contributions” are for the other guy.
Meh, I think our taxes are too low, and they went down with Trump's changes.

So yeah, we donated more money to charity after.  And I live in California, so I already pay plenty of tax.  (And I don't benefit from Prop 13). 

ixtap

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Re: Biden wants big 401k changes
« Reply #69 on: August 27, 2020, 02:40:49 PM »
I just wanted to add to the discussion because I found this to be an interesting topic. I'm 25 and my MAGI last year was roughly $86,000. I donated $3,000 to charity and when I went to do my taxes, discovered that the standard deduction is so large now that the itemized deduction option is worse than taking the standard deduction. The charitable contributions had no tax benefits. Thoughts on this?

This is a well known feature/bug of the changes. There was much concern about the effect it might have on giving. Never saw any follow up and I believe people are giving plenty this year.

Yes, by increasing the standard deduction amounts and decreasing the amount of itemized deductions (capping state/local tax at $10,000 is a big one for a lot of former itemizers), the number of people itemizing has gone down quite a bit. As with other tax deductions, the higher earners got a bigger discount on their charity than lower earners. Will they write slightly smaller checks to compensate? Maybe! Hard to say. It does create more of an incentive to bunch donations into one year (such as through a donor advised fund) so that they can still deduct most of it. For the vast majority of Americans who didn't itemize before and/or were in low tax brackets, this doesn't change their incentive structure much. These folks don't write huge checks but they make up for it with their large numbers.

The CARES Act does add a 2020-only $300 deduction against charitable contributions for people who claim the standard deduction.
Are we in some sort of weird hole?  We are in California, so the tax changes moved us from itemization to standard deduction.  As planned?

Our taxes went down.  Meaning, we got a refund 2 years in a row.  We earned $40,000 year over year when that change was made, but only paid ~4000 or 5000 more in taxes.  That means our total tax rate went down...

We are CA as well and went from standard deduction to big standard deduction, plus the new rates, so we paid less in taxes despite DH getting a promotion. Still no federal refund, though, as there were also withholding changes written into the tax code. There was an LA Times article covering different scenarios and they included a couple nearly identical to us (similar income, renters, no kids...), so we had a good idea what to expect.

Sid Hoffman

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Re: Biden wants big 401k changes
« Reply #70 on: August 27, 2020, 04:39:29 PM »
This means that if you're in the 22% or 24% tax brackets(a majority of people who are making decent-sized contributions to 401k's), it's a tiny net plus for you.  If you're in the 10%/12% bracket, it's a larger plus - but with the exception of highly-frugal individuals toward the top of the 12% bracket, most people in the 10/12% brackets aren't maxing out their 401k's. 

i.e. if your income is below $163k(single) or $326k(family) you'll get a larger tax deduction.  If your income is above that you'll get a smaller deduction/have to pay more taxes.  163k/326k  income is 95th-97th percentile in this country, so it's negatively affecting a very small slice of the population who are doing quite well already.

Thanks for the analysis. That helps it make more sense to me then. I'm currently and expect to always be well under the income threshold(s) you mentioned, so I guess it won't affect me personally nor much of anyone. Some of the articles were worded to make it sound like the total contribution would be capped at $20k. Currently I contribute the max ($19.5k) and get another 5% from my employer, which puts me solidly over the $20k limit, but I guess if it's not so much of a limit and won't affect me as long as my income is under $163/326k/year I'm not going to worry about it.

Buffaloski Boris

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Re: Biden wants big 401k changes
« Reply #71 on: August 27, 2020, 05:16:35 PM »
A point that I'm surprised that no one has brought up is that traditional 401(k)s are a tax deferral vehicle, and aren't all that great in any case.  The idea behind them is that you don't pay tax on a relatively small sum today in exchange for paying tax at the normal rates on (presumably) a much bigger amount later. It kind of makes you wonder why politicians would want to kill the goose that lays so many golden tax eggs in the future? 

Given current tax rates and very favorable capital gains treatment, you're possibly/probably better off just skipping 401(k)s entirely.  I do fund mine to the max, but for three specific reasons:

(1) state income taxes.  There is no favorable treatment in my state for capital gains but effectively I can deduct all contributions to a 401(k).
(2) Changing investments without recognizing gains until I take the funds out. In the end I probably pay more in taxes, but it's convenient. So sloth, laziness, and inertia.
(3) 401(k)s and and ERISA covered plans offer some asset protection on the off chance I need it. 

PDXTabs

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Re: Biden wants big 401k changes
« Reply #72 on: August 27, 2020, 05:40:27 PM »
It kind of makes you wonder why politicians would want to kill the goose that lays so many golden tax eggs in the future? 

Because the CBO always calculates increased/decreased deficits over the next 10 years, not 50.

Bucksandreds

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Re: Biden wants big 401k changes
« Reply #73 on: August 27, 2020, 06:31:13 PM »
It's bugged me for YEARS that people earning high incomes (and thus with an easier time saving in 401ks) ALSO get a bigger tax benefit. I'd absolutely support the change to a tax credit.  My husband and I have regularly discussed how much many parts of the society are stacked against the financial progress of people who need it most, and stacked in favor of people (like us) who are already over the really tough part of the personal financial 'hump'.  This would be one little blow against that unfairness.
Oh bullshit.

The full cost of government spending for an American (federal, state, local) is about $15,000 per year, for every year of their life, which is about 80 years.

The vast, vast majority of Americans will never pay anywhere near what they cost society at large. And that's fine. But saying the deck is stacked against them is populist garbage.



So I have a challenge. Those who really like paying taxes shouldn’t wait for a tax hike. The Federal government, all the states, and most all localities will happily accept cash donations. So open up those checkbooks and donate generously! And it doesn’t even need to be your state. If you think that Vermont or New York State or Illinois are just dreamy, then send them some love! And nothing says “I love you!” quite like cold, hard cash.

Hmmm. Somehow I don’t think many folks are going to open their own checkbooks. Because when it comes to taxes, “generous contributions” are for the other guy.

That’s one of the most intellectually dishonest arguments I’ve seen. Taxation only works in aggregate. Even Jeff Bezos paying 50% of his wealth this year in taxes, erases the federal deficit by .5%. Anyone voluntarily paying extra taxes has no statistically significant effect. Only by a universal progressive system can governments be funded, adequately.

teen persuasion

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Re: Biden wants big 401k changes
« Reply #74 on: August 27, 2020, 10:02:40 PM »
For the bulk of large 401k contributors, this is a "nothing-burger", as they say these days.

Quote
Biden would instead “equalize” the incentive system by ending such deductions and replacing them with flat tax credits for each dollar saved. The campaign isn’t saying what that percentage would be, but the Urban-Brookings Tax Policy Center has estimated a 26 percent credit would be roughly revenue neutral over the first 20 years and beyond, which the Biden campaign is aiming for.


This means that if you're in the 22% or 24% tax brackets(a majority of people who are making decent-sized contributions to 401k's), it's a tiny net plus for you.  If you're in the 10%/12% bracket, it's a larger plus - but with the exception of highly-frugal individuals toward the top of the 12% bracket, most people in the 10/12% brackets aren't maxing out their 401k's. 

i.e. if your income is below $163k(single) or $326k(family) you'll get a larger tax deduction.  If your income is above that you'll get a smaller deduction/have to pay more taxes.  163k/326k  income is 95th-97th percentile in this country, so it's negatively affecting a very small slice of the population who are doing quite well already.

I completely agree with your assessment -- that's how I viewed it after reading the Forbes article.  It has some minor tweaks around the edges, but isn't really that big of an impact for the vast majority of taxpayers.  It seems like the intent is to allow for a bigger benefit for low-income folks... Sounds like that could be accomplished a whole lot easier by making the "Savers Credit" a bit more generous, potentially.

A 25% credit would not be a bigger benefit for lower income folks eligible for EITC.  The EITC phaseout rate is 21%.  My state matches EITC at 30%, so 30% of 21% is an extra 6.3%.  Thus 21% + 6.3% = 27.3% > 25% before considering any federal or state tax deductions.  State tax for us is 5+%, so we are now up past 32%.  Our federal bracket is 12%, but a number of nonrefundable credits more than wipe out any federal taxes (60% of AOTC, $600 of < 17 CTC, $500 > 17 CTC, $2k RSC) so we won't add any federal rate to the tally.

Now, would this proposed credit be fully refundable like EITC, or nonrefundable like the nearly useless retirement Saver's credit?  RSC is designed so that it cannot be effectively used - at AGI low enough to be eligible for the max credit, tax owed is zero or lower than the credit.  At an AGI where tax owed = max credit, AGI is no longer low enough to be eligible for max credit so tax is owed.

Then there's the outside things that rely on using the taxable income deductions, like FAFSA and ACA.  Reducing our AGI thru payroll retirement contributions can make us eligible for either the Simplified Needs Test (ignores asset reporting, reducing EFC), or the auto EFC = 0.  The ACA is more straightforward - lower AGI = greater subsidies, AGI too high and you are ineligible for any subsidies at all.

I'm very sensitive to the drawbacks of the current employer controlled 401k system - until a year ago I had no access to any employer plan whatsoever.  Now I have a SIMPLE IRA, and I'm maxing it out to attempt to get a bit more of a balance between tax deferred $ in my name vs DH's name (to that point, we'd saved everything traditional in his employer accounts as our only choice; we also have Roth IRAs in both names).  Whose name is on the account is important due to a state tax quirk - we each get a $20k annual tax free withdrawal from retirement accounts, but it's not combinable - no traditional $ for me to withdraw, no $20k tax free withdrawal, cutting our total tax break in half.

That $20k or 20% limit would mean I couldn't max anymore, 20% cuts me down to $4k.  That percentage limit HURTS lower income workers more.

I like the idea of increasing IRA contribution limits and putting retirement accounts in the control of individuals instead of employers, except for one detail: IRAs and employer plans are treated differently on the 1040.  Employer plan deferrals reduce both w2 wages AND AGI (important for EITC calculation - EITC is tested on BOTH).  IRA contributions only reduce AGI, and are thus useless for increasing EITC.

If these rules had been in place for last year's taxes, we'd have lost $4300 in refundable credits (assuming best case scenario: the new credit is refundable and would offset the extra state tax on lost deductions, else a loss of an extra $1500), and we'd have been limited to $16k less in retirement contributions (neither of us maxed last year, but the 20% limit still would cut our actual amount nearly in half).

All around, it's lose-lose-lose for lower income earners.

EscapeVelocity2020

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Re: Biden wants big 401k changes
« Reply #75 on: August 27, 2020, 10:59:58 PM »
A point that I'm surprised that no one has brought up is that traditional 401(k)s are a tax deferral vehicle, and aren't all that great in any case.  The idea behind them is that you don't pay tax on a relatively small sum today in exchange for paying tax at the normal rates on (presumably) a much bigger amount later. It kind of makes you wonder why politicians would want to kill the goose that lays so many golden tax eggs in the future? 

Given current tax rates and very favorable capital gains treatment, you're possibly/probably better off just skipping 401(k)s entirely.  I do fund mine to the max, but for three specific reasons:

(1) state income taxes.  There is no favorable treatment in my state for capital gains but effectively I can deduct all contributions to a 401(k).
(2) Changing investments without recognizing gains until I take the funds out. In the end I probably pay more in taxes, but it's convenient. So sloth, laziness, and inertia.
(3) 401(k)s and and ERISA covered plans offer some asset protection on the off chance I need it.

You're really losing me on this one Buffaloski.  Now you make it sound like the 401k tax break isn't all that great because taxes will be so much higher in the future that you might as well pay the marginal rates now and save yourself all that hard work figuring it out later.  That conclusion is one of the least things I'm worried about.  I will have optionality in my income sources at that point in life, as well as clarity about how much pain I'm willing to endure for the incremental income.  I may have reduced headroom to shuffle my 401k / traditional IRA in to Roth, and mariginal rates may shift, but if I'm paying a higher effective rate, then people who are working are really getting screwed and at least I bailed out of that mess having benefited from the low rates in the past!

But yeah, I really don't think things are going to suddenly get back to 1950's level taxation.

Abe

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Re: Biden wants big 401k changes
« Reply #76 on: August 28, 2020, 12:09:08 AM »
A point that I'm surprised that no one has brought up is that traditional 401(k)s are a tax deferral vehicle, and aren't all that great in any case.  The idea behind them is that you don't pay tax on a relatively small sum today in exchange for paying tax at the normal rates on (presumably) a much bigger amount later. It kind of makes you wonder why politicians would want to kill the goose that lays so many golden tax eggs in the future? 

Given current tax rates and very favorable capital gains treatment, you're possibly/probably better off just skipping 401(k)s entirely.  I do fund mine to the max, but for three specific reasons:

(1) state income taxes.  There is no favorable treatment in my state for capital gains but effectively I can deduct all contributions to a 401(k).
(2) Changing investments without recognizing gains until I take the funds out. In the end I probably pay more in taxes, but it's convenient. So sloth, laziness, and inertia.
(3) 401(k)s and and ERISA covered plans offer some asset protection on the off chance I need it.

You're really losing me on this one Buffaloski.  Now you make it sound like the 401k tax break isn't all that great because taxes will be so much higher in the future that you might as well pay the marginal rates now and save yourself all that hard work figuring it out later.  That conclusion is one of the least things I'm worried about.  I will have optionality in my income sources at that point in life, as well as clarity about how much pain I'm willing to endure for the incremental income.  I may have reduced headroom to shuffle my 401k / traditional IRA in to Roth, and mariginal rates may shift, but if I'm paying a higher effective rate, then people who are working are really getting screwed and at least I bailed out of that mess having benefited from the low rates in the past!

But yeah, I really don't think things are going to suddenly get back to 1950's level taxation.

They are clearly beneficial for high income earners (especially in the highest tax brackets). Someone in that bracket with a target spending in retirement of ~$115k (twice median earnings) in today's dollars would have a marginal rate of 24%, assuming rates stayed the same. That is a safe assumption based on rates since the Reagan-era tax reform, and another 40 years before that): https://taxfoundation.org/us-federal-individual-income-tax-rates-history-1913-2013-nominal-and-inflation-adjusted-brackets/ and graphed below for a single filer.

Assuming they increase, it's a long way to go from 24% to 35%. I just don't think that risk is very high based on prior US history. Also, the likelihood we will switch to a European high-tax welfare state (where the marginal tax rate is 40% for the median salary in the UK or 32% for Sweden, for example) is even lower.

In summary, for someone earning median wage in the US it's still a win because they aren't getting taxed now, thus theoretically allowing more contributions. The tax rate will likely be the same or lower in retirement. For high wage earners, it's clearly beneficial.
« Last Edit: August 28, 2020, 12:11:50 AM by Abe »

Sid Hoffman

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Re: Biden wants big 401k changes
« Reply #77 on: August 28, 2020, 12:11:12 AM »
A point that I'm surprised that no one has brought up is that traditional 401(k)s are a tax deferral vehicle, and aren't all that great in any case.  The idea behind them is that you don't pay tax on a relatively small sum today in exchange for paying tax at the normal rates on (presumably) a much bigger amount later. It kind of makes you wonder why politicians would want to kill the goose that lays so many golden tax eggs in the future?

Have you done the math? I have. I'm in a 29% tax bracket (federal and state) currently which means for the $19,500 going in to my 401k this year I'm saving $5655 in income taxes. Since I plan to retire relatively young and do Roth rollovers around $30k/year, that would put $12,400 at 0% (standard deduction), $9875 at 10% ($988), and $7725 at 12% ($927) for total taxes of $1915. State is generally 1/4 of federal, so call it $479 state. In exchange, the money continues to increase in value tax-free in the tIRA and is then tax free for life once rolled over into the rIRA.

So looking at the math, I save $5655 in taxes on $19,500 of income, which grows over time until it's roughly $30k to be rolled over into a Roth, on which I pay only $2394 in taxes. My my math, this means I'm more than cutting my taxes in half for that money, as $2394 / $5655 = 42% and that's not even counting the fact that the dividends and capital gains in both the T and R IRAs is tax free as well. By doing those rollovers from roughly age 50 to 72 when the RMDs kick in, my 401k rolled over tIRA should be low enough that even my RMDs aren't much more than $30k/year anyway.

So while for some people they will end up paying as much or more in taxes, for the FIRE crowd that are in high tax brackets now but retire young enough to keep their rollovers and RMDs in low tax brackets later then 401ks, especially in concert with a Roth rollover strategy to spread out taxes over decades of low tax brackets will absolutely save you money on taxes. Pretty much no matter what, I would never talk anyone out of using a 401k to build retirement savings. At worst, they are likely to break even, but at best they provide actual tax savings over your lifetime.

Fomerly known as something

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Re: Biden wants big 401k changes
« Reply #78 on: August 28, 2020, 06:01:04 AM »
I just wanted to add to the discussion because I found this to be an interesting topic. I'm 25 and my MAGI last year was roughly $86,000. I donated $3,000 to charity and when I went to do my taxes, discovered that the standard deduction is so large now that the itemized deduction option is worse than taking the standard deduction. The charitable contributions had no tax benefits. Thoughts on this?

Depends, as a single homeowner I still itemize.  With property and state income taxes, I get tp 10k (my combined SALT taxes are somewhere just above that mark).  So after those and another $2,400 (with again a mortgage I easily fly past) before itemizing is more advantageous.  You want a deduction for charity, get a house (and mortgage) make more money and give more of it.

BTDretire

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Re: Biden wants big 401k changes
« Reply #79 on: August 28, 2020, 07:38:09 AM »
This change would hurt my savings, but it is still better than anything Trump is doing. 
Trump passed the TCJA and in the following months brought a 49 year record low unemployement? He cut tax rates and doubled the standard deduction.
 Trump also started the QBI to help small business owners.
That seems like good stuff.
 401k increases may help, but Biden has made it clear he will raise taxes, so there may be a trade off.

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Re: Biden wants big 401k changes
« Reply #80 on: August 28, 2020, 08:07:23 AM »
The current 401k setup favors high earners and the proponents on here are saying this is fair because they pay more tax. If the goal is to incentivise the maximum number of people to save for retirement, the tax credit proposal wins out. It is all about incentives. I would imagine the person currently deferring 19.5k in a 401k will continue to save for their retirement, regardless of the tax treatment.

The whole flat tax argument is ridiculous. It seems like the people on this site should really understand necessary base income. If you tax 4.5k of a 30k income that makes a much bigger quality of life impact than taxing 15k of a 100k income. The pandemic should have really opened peoples' eyes about how much we all depend on essential workers; yet we are happy to pay them a fraction of what we are willing to pay others. It is pretty clear your income is not indicative of your importance to society.     

zolotiyeruki

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Re: Biden wants big 401k changes
« Reply #81 on: August 28, 2020, 10:07:30 AM »
I'm with Much Fishing here--IMO there are way too many types of tax-deferred accounts that do exactly the same thing (tIRA, 401k, 403b, etc), just with different limitations/conditions placed on their use.  It'd be better, in my mind, to combine all those types into one type, decouple it from one's employer, and institute just one cap on deductible contributions.
Quote
I just wanted to add to the discussion because I found this to be an interesting topic. I'm 25 and my MAGI last year was roughly $86,000. I donated $3,000 to charity and when I went to do my taxes, discovered that the standard deduction is so large now that the itemized deduction option is worse than taking the standard deduction. The charitable contributions had no tax benefits. Thoughts on this?
@Archipelago Yeah, that was intentional.  I don't think the intent was to discourage charitable contributions, but rather to simplify taxes for most people.  The SALT deduction limit was definitely more political--from one side of the aisle, it's an attempt to reduce what is effectively a subsidy to residents of highly-taxed states, and from the other side of the aisle, it's an attempt to punish residents of blue states.

Sid Hoffman

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Re: Biden wants big 401k changes
« Reply #82 on: August 30, 2020, 06:15:45 PM »
I'm with Much Fishing here--IMO there are way too many types of tax-deferred accounts that do exactly the same thing (tIRA, 401k, 403b, etc), just with different limitations/conditions placed on their use.  It'd be better, in my mind, to combine all those types into one type, decouple it from one's employer, and institute just one cap on deductible contributions.

It would depend on how you frame it. I know plenty of people who only contribute to their 401k because it's just checking a box at work. If you make people do research on investment companies, register bank account info, have monthly withdrawals from their bank accounts, and so on then I suspect hardly anyone would sign up for it, same as how hardly anyone seems to actually sign up for Roth IRAs. People will only save for retirement if it's easy, and honestly for so many people they'll only do it if its mandatory. Creating a tax credit then outlawing the easiest way to get people to sign up will just kick the majority of people out of the system and make smug people feel good about themselves with no regard for everyone who now doesn't have retirement savings anymore.

If you want to maximize retirement savings then it needs to be mandatory, same as Social Security. No tax credits, just make it a tax, period, and optionally you can tell the government where to direct your retirement tax money. That's the only way to guarantee people save.

ixtap

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Re: Biden wants big 401k changes
« Reply #83 on: August 30, 2020, 06:20:40 PM »
I'm with Much Fishing here--IMO there are way too many types of tax-deferred accounts that do exactly the same thing (tIRA, 401k, 403b, etc), just with different limitations/conditions placed on their use.  It'd be better, in my mind, to combine all those types into one type, decouple it from one's employer, and institute just one cap on deductible contributions.

It would depend on how you frame it. I know plenty of people who only contribute to their 401k because it's just checking a box at work. If you make people do research on investment companies, register bank account info, have monthly withdrawals from their bank accounts, and so on then I suspect hardly anyone would sign up for it, same as how hardly anyone seems to actually sign up for Roth IRAs. People will only save for retirement if it's easy, and honestly for so many people they'll only do it if its mandatory. Creating a tax credit then outlawing the easiest way to get people to sign up will just kick the majority of people out of the system and make smug people feel good about themselves with no regard for everyone who now doesn't have retirement savings anymore.

If you want to maximize retirement savings then it needs to be mandatory, same as Social Security. No tax credits, just make it a tax, period, and optionally you can tell the government where to direct your retirement tax money. That's the only way to guarantee people save.

One potential solution is that it could still be a checkbox at work. When you are filling out your direct deposit form as a new hire, you list your universal account (or whatever we are calling it), as well as your normal direct deposit account.

Simpli-Fi

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Re: Biden wants big 401k changes
« Reply #84 on: August 30, 2020, 06:28:02 PM »
This change would hurt my savings, but it is still better than anything Trump is doing. 
this is strange, have your savings been hurting for the last 4 years?

I'm a red panda

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Re: Biden wants big 401k changes
« Reply #85 on: August 31, 2020, 07:06:05 AM »
This change would hurt my savings, but it is still better than anything Trump is doing. 
this is strange, have your savings been hurting for the last 4 years?

This doesn't say my savings are hurting the last 4 years. My savings have been fine under Trump, and they were fine under Obama too, though my taxes have been higher.  But money isn't everything, and the things Trump is doing are hurting humanity.  I would absolutely take the hit to my savings/401k under Biden to put an end to Trump's policies.

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Re: Biden wants big 401k changes
« Reply #86 on: August 31, 2020, 09:45:30 AM »
This change would hurt my savings, but it is still better than anything Trump is doing. 
this is strange, have your savings been hurting for the last 4 years?

This doesn't say my savings are hurting the last 4 years. My savings have been fine under Trump, and they were fine under Obama too, though my taxes have been higher.  But money isn't everything, and the things Trump is doing are hurting humanity.  I would absolutely take the hit to my savings/401k under Biden to put an end to Trump's policies.

I agree.  A politician's thoughts on 401k don't crack the top 10 issues I'll be using to decide my vote this year. 

the_fixer

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Re: Biden wants big 401k changes
« Reply #87 on: September 09, 2020, 10:13:51 AM »
Honestly the way workplaces have started auto enrollment for 401k’s and making people opt out has been great to get people to save. The only reason I started saving in my 401k at my first real job was due to an employer that did an auto enroll system and after seeing it grow I leaned about it and contributed more. The only reason I started maxing it out was to save on taxes so the incentive works and hopefully my wife and I will be less likely to need financial help in our old age.

I personally think we should do everything we can to encourage people to save more, raise the limits (or remove them all together) AND make more incentives for people in the lower income brackets to save more.

No reason to tear down one group to build up another.


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Bird In Hand

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Re: Biden wants big 401k changes
« Reply #88 on: September 09, 2020, 04:11:15 PM »
No reason to tear down one group to build up another.

That's crazy-talk.  Without constant pandering and stoking the flames of class/race/color/sex/age/etc. warfare, the two-party duopoly in the US might be at risk of slackening its grip somewhat!

As to the topic at hand, whether or not it would affect me personally would depend on the limits.  My wife and I both have employers with generous 401k matching, so unless the combined employer+employee limit is well north of $25k, we would certainly lose out on a fair bit of tax-advantaged space.  If the limit were $20k, we'd be paying an additional ~$4,000 in income tax yearly.  In effect it would be a 25% tax hike for us.

aspire_to_fire

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Re: Biden wants big 401k changes
« Reply #89 on: September 19, 2020, 12:25:35 PM »
has anyone here considered what this proposal would do to the (so called) mega-backdoor Roth?

 It seems like tax advantaged savings (or tax credited savings under the new plan) would prevent people from saving more then 20,000 a year or 20% of their salary. So the current magic of the mega back foot Roth, which let’s you save an additional 37k over the 401k limits would disappear? Does this seem right to the MMM hive mind?

rantk81

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Re: Biden wants big 401k changes
« Reply #90 on: September 19, 2020, 12:27:50 PM »
has anyone here considered what this proposal would do to the (so called) mega-backdoor Roth?

 It seems like tax advantaged savings (or tax credited savings under the new plan) would prevent people from saving more then 20,000 a year or 20% of their salary. So the current magic of the mega back foot Roth, which let’s you save an additional 37k over the 401k limits would disappear? Does this seem right to the MMM hive mind?

I wouldn't even bother getting stuck in the weeds trying to look at details like that yet.  Wait until there is at least proposed legislation!  Or else it's all merely speculation.

terran

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Re: Biden wants big 401k changes
« Reply #91 on: September 19, 2020, 12:46:58 PM »
I agree, don't worry about anything until there's something to worry about.

And as Biden said awhile back to a room full of wealthy people (paraphrased), "nothing will fundamentally change," by which I think he meant "Y'all have plenty of money, even if you have to pay some more taxes, you'll be fine and no part of your life will really be impacted." The same applies to us as mustachians. If we have a bit less tax advantaged space or save a bit less in taxes for contributing to it, then no big deal, we'll still be stashing away boatloads of money every month, and we'll still retire early. I say this as someone with over available $100k of tax advantaged space (which we actually fill). Take that all away and we'll still retire ridiculously early and pay very little tax over our lifetime all things considered.

And hey, if they finally get this health insurance thing sorted out, or put us on the path to get there, that will way more than make up for losing some piddly tax advantaged accounts for early retirees.

SauronHimself

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Re: Biden wants big 401k changes
« Reply #92 on: September 21, 2020, 02:31:42 PM »
I wouldn't mind paying more taxes during my working years if Congress eliminated the 401k early withdrawal penalty permanently.

rantk81

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Re: Biden wants big 401k changes
« Reply #93 on: September 21, 2020, 03:24:14 PM »
I wouldn't mind paying more taxes during my working years if Congress eliminated the 401k early withdrawal penalty permanently.

I don't think that'll ever happen.  The penalty is meant to discourage non-mustachians from withdrawing funds before retirement.  The people who write the laws -- they don't really consider the "fringe" cases where someone carefully plans their investments, expenses, SWR rates, and retires decades earlier than the typical American.

Fortunately, there are strategies you can employ such as Roth Conversion Ladder, or even SEPP/72t.

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Re: Biden wants big 401k changes
« Reply #94 on: September 21, 2020, 03:46:35 PM »
This change would hurt my savings, but it is still better than anything Trump is doing. 

I can put that money in a taxable account, and it won't make a huge difference.

Yep. There is no possible way Biden will be as bad as Trump.
The only retirement plan stuff I see Trump talking about right now is one that will completely screw over people's social security, which would make the retirement crisis much worse than it is already.

zolotiyeruki

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Re: Biden wants big 401k changes
« Reply #95 on: September 21, 2020, 04:11:28 PM »
This change would hurt my savings, but it is still better than anything Trump is doing. 

I can put that money in a taxable account, and it won't make a huge difference.

Yep. There is no possible way Biden will be as bad as Trump.
The only retirement plan stuff I see Trump talking about right now is one that will completely screw over people's social security, which would make the retirement crisis much worse than it is already.
Can you elaborate on what Trump has proposed?  I haven't heard anything on the topic.

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neophyte

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Re: Biden wants big 401k changes
« Reply #97 on: September 22, 2020, 06:17:56 AM »
Reducing total available pre-tax savings (employer and employee) from (at the time) $51,000 to only the lesser of $20,000 or 20% of pay;

This is actually not a big change for most people.
This asylum beloved forum is filled with individuals who do a lot of things that "most people" do not do. It's very relevant to us!

As I understand it, it would effectively cut my contributions in half from $24,436 to $12,184. (Why is there that 20% rule!?) Hard for me to get excited about that.

 I haven't really thought hard about the tax credit part of that, but it seems like it might save me about $100 a year in federal taxes. It still doesn't seem like a great tradeoff to me.

But then, I'm not normal I guess.

SauronHimself

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Re: Biden wants big 401k changes
« Reply #98 on: September 22, 2020, 06:30:46 AM »
I wouldn't mind paying more taxes during my working years if Congress eliminated the 401k early withdrawal penalty permanently.

I don't think that'll ever happen.  The penalty is meant to discourage non-mustachians from withdrawing funds before retirement.  The people who write the laws -- they don't really consider the "fringe" cases where someone carefully plans their investments, expenses, SWR rates, and retires decades earlier than the typical American.

Fortunately, there are strategies you can employ such as Roth Conversion Ladder, or even SEPP/72t.

I think it's ultimately a moot point because of the following: Before COVID the personal savings rate hovered between 7-8%. At 8% it takes 56 years to become financially independent, which means the average person can't retire before social security. The government might as well let us have our own money.

zolotiyeruki

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Re: Biden wants big 401k changes
« Reply #99 on: September 22, 2020, 07:21:39 AM »