The Money Mustache Community

General Discussion => Welcome and General Discussion => Topic started by: johndoe on August 25, 2020, 06:57:50 PM

Title: Biden wants big 401k changes
Post by: johndoe on August 25, 2020, 06:57:50 PM
Not trying to start a debate, but thought you'd find these articles interesting:

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

https://401kspecialistmag.com/biden-to-swap-401k-tax-breaks-for-credits/

https://www.rollcall.com/2020/08/24/biden-retirement-proposal-would-upend-traditional-401k-plans/
Title: Re: Biden wants big 401k changes
Post by: PDXTabs on August 25, 2020, 07:01:57 PM
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.
Title: Re: Biden wants big 401k changes
Post by: bloodaxe on August 25, 2020, 07:40:31 PM
I'm not going to worry about changes unless he is elected and a bill is making its way through congress.
Title: Re: Biden wants big 401k changes
Post by: seattlecyclone on August 25, 2020, 07:55:15 PM
Keep in mind that with this or pretty much any other policy proposal, "Biden plans to do X" is shorthand for "Biden would be happy to sign a bill that does X into law if Congress decides to pass one." Congress sets their own agenda. The president can suggest topics for them to consider next, but he can't force a vote on this or any other item.

I haven't read about this policy proposal before but it does generally seem like a decent idea. The current system rewards high earners more for saving than low earners. If the goal is to make sure that as many Americans as possible have adequate savings for retirement, this is a pretty backwards incentive structure.

I am curious about how this policy would change things at withdrawal time, if at all. If so, would the treatment for withdrawals of existing savings change as well? Right now your traditional/Roth choice is based on a comparison of your current tax bracket to your expectation of what your tax bracket will be in retirement. Will the withdrawals be taxed as regular income as now? If so it would be a comparison between the tax credit rate (26% is thrown out in the article) and what you expect your tax bracket to be in retirement.
Title: Re: Biden wants big 401k changes
Post by: SwordGuy on August 25, 2020, 07:56:13 PM
That is a more equitable way to do it.

Even better, if we can get the damn employers out of it life would be very good.   The only thing I want my employer to do is put money in the retirement account of my choosing with the split that I want it to have.  I don't want them to have the right to force people to use "their plan" or "no plan".   No need for clueless HR people to ever be involved in it at all.    Ideally, they could provide a plan option if they wanted to, but it should be an optional plan option.

A 25% tax credit on savings would be better for regular folks.

Yeah, higher paid folks won't get as sweet a deal.  So what?  They've already got a hell of a sweet deal already -- they're higher paid!

Title: Re: Biden wants big 401k changes
Post by: Davnasty on August 25, 2020, 08:06:14 PM
The first article mentions several potential changes but the other two only mention trading the tax deferral for a flat credit as a percentage of contributions so I'm only going to comment on that.

I think this would be fair. The basic argument is that when someone in the 32% bracket contributes $100 they save $32 in taxes; when someone in the 10% bracket contributes $100 they save $10 in taxes; why should higher earners get a greater incentive to save?

I'd be curious how state taxes would factor in, would state tax deferral be eliminated as well? And if so, would states give a separate credit on contributions? I'm sure there are some other details I haven't taken into consideration but I am generally favorable toward giving equal incentives to lower income earners.
Title: Re: Biden wants big 401k changes
Post by: Paul der Krake on August 25, 2020, 08:13:49 PM
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!



Title: Re: Biden wants big 401k changes
Post by: seattlecyclone on August 25, 2020, 09:03:11 PM
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!

Indeed! And if I, a FIREd person, can get a 26% tax credit that I don't need in exchange for putting my small part-time self-employment income that I don't need into my solo 401(k), sign me up! I'm sure I'll have heirs and and/or charities that will appreciate it someday.
Title: Re: Biden wants big 401k changes
Post by: Paul der Krake on August 25, 2020, 09:58:33 PM
Relevant XKCD:

(https://imgs.xkcd.com/comics/standards.png)
Title: Re: Biden wants big 401k changes
Post by: chesebert on August 26, 2020, 06:01:27 AM
A train wreck of a policy for folks seeking to FIRE. We are all racing to the bottom folks.
Title: Re: Biden wants big 401k changes
Post by: Fomerly known as something on August 26, 2020, 06:21:17 AM
A train wreck of a policy for folks seeking to FIRE. We are all racing to the bottom folks.

Why because we might need to pay more in taxes while working?

From a practical standpoint, this would mean I’d end up shifting the “excess” 5-7k into a taxable investment account and if that included my Roth that would mean 11-13k more.   The result: yes I might have to work a year or two more but it wouldn’t train wreck me for FIRE.
Title: Re: Biden wants big 401k changes
Post by: I'm a red panda on August 26, 2020, 06:26:05 AM
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.
Title: Re: Biden wants big 401k changes
Post by: Freedom2016 on August 26, 2020, 06:56:58 AM
Is the goal to make 401k changes revenue neutral?

I'd be more in favor of a plan that gives lower income earning people the same sweet perks as higher earners, rather than reducing perks for higher earners.

I say this as a biz owner and main breadwinner for my family, where the solo 401k is a big deal for us.
Title: Re: Biden wants big 401k changes
Post by: wageslave23 on August 26, 2020, 07:10:42 AM
Is the goal to make 401k changes revenue neutral?

I'd be more in favor of a plan that gives lower income earning people the same sweet perks as higher earners, rather than reducing perks for higher earners.

I say this as a biz owner and main breadwinner for my family, where the solo 401k is a big deal for us.

I agree. As a government, you want both high earners and low earners saving for retirement.  If you stop incentivizing the high earners, a lot of them won't save and you'll end up supporting them in retirement too.
Title: Re: Biden wants big 401k changes
Post by: KungfuRabbit on August 26, 2020, 07:49:33 AM
I totally agree with gutting the 401k system and changing it, even though it would directly hurt me.

My wife and I max out our 401k and max out a back door ROTH IRA, and with the added employer match we are about $60,000 annually that gets special tax status.  We also both have "pensions", which are basically tax-deferred savings accounts that our employers put money into each year, so essentially another ~$20,000 per year into an IRA.

People just LOVE to talk about the "middle class" and increasing taxes on the "middle class" is political suicide, but the reality is anyone that is putting $80,000 per year into tax advantaged retirement accounts is not "middle class" and does not need help to save for retirement from the government.  But when Biden talks about increasing taxes on the rich he only actually talks about the top tax bracket (over $600,000 per year), or extra-top new bracket for higher capital gains tax (over $1,000,000 per year), because so many people making $150,000-$500,000 per year like to think of themselves as "middle class".  And don't even bother talking about Trumps policies, which don't even try to hide the fact they are specifically for the super rich (like lowering capital gains tax even more, or cancelling them all together in a "tax holiday"). 

If they changed the system to cost the same amount of money, but re-did the way it worked to spread out the benefits to more people it would be WAY more equitable, and the country would be WAY better off in the long run (I'm truly scared of what will happen with retirees a decade or two from now, sooooooo many people have very little money saved, but also don't have a pension).

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.     
Title: Re: Biden wants big 401k changes
Post by: Greenstache on August 26, 2020, 08:10:25 AM
Even better, if we can get the damn employers out of it life would be very good.   The only thing I want my employer to do is put money in the retirement account of my choosing with the split that I want it to have.  I don't want them to have the right to force people to use "their plan" or "no plan".   No need for clueless HR people to ever be involved in it at all.    Ideally, they could provide a plan option if they wanted to, but it should be an optional plan option.


It is interesting how providing for retirement stability has quickly shifted from employers (pensions) to employees (401(k) accounts with employer matching provisions), and now, as you propose, could shift even further to become completely driven by the individual (I'd prefer that).  It would certainly be more equitable to have the nation's incentivized savings structure (whatever it was) available to all earners, not just those who happen to have a company-provided plan.  Right now, the mega backdoor option is only available to some folks - would be great if it that and Roth elements were always available, which would go a long way to leveling the accessibility of tax-advantaged savings options. 

One of the articles talks about how current lower earners don't get any tax break for saving through the 401(k) system, which is not entirely true (Retirement Savings Contributions Credit currently would apply).  Hopefully, savers in the lowest brackets would choose to save under a Roth option, but those are not always provided by plans.  It seems like it should be fairly noncontroversial to require all plans to allow both options as a starting point (not a lot more company-specific admin work, although some additional work for the recordkeepers - but they have the infrastructure to handle it).
Title: Re: Biden wants big 401k changes
Post by: TomTX on August 26, 2020, 08:23:42 AM
A train wreck of a policy for folks seeking to FIRE. We are all racing to the bottom folks.

Totally disagree. If this proposed change would be a "train wreck" for your plans, you are very highly compensated and can afford it.
Title: Re: Biden wants big 401k changes
Post by: Kazyan on August 26, 2020, 08:42:47 AM
It's an interesting idea, but would need development. Even ignoring the tax advantages or whatever, a 401(k) contribution lowers your income for the purposes of the Affordable Care Act, which will then subsidize more of your healthcare premiums (if you have health insurance from the ACA, anyway). So if you're around median income, you can already get bonus subsidies via 401(k) contributions.

Still, this effect only matters if you're already maxing out an IRA, you're middle-income, and your employer's health insurance is worse than Obamacare. So...not many people, come to think of it.
Title: Re: Biden wants big 401k changes
Post by: Assetup on August 26, 2020, 08:58:14 AM
Lol the comments saying essentially "if this impacts you then you deserve it" are pretty small minded.  This potentially impacts a ton of middle class families trying to get a leg up on their retirements and brushing it off as they deserve it is pretty ignorant.  I see some arguments for this plan and against it but the vitriol towards families earning more than you do is just mind boggling to me.  I look at others doing better than me and think "wow good for you guys" not "I'm jealous and I hope you start doing worse".  Think before you hate guys.  This doesn't apply to everyone but surprisingly more of you than I would have hoped....

Sent from my moto g(6) plus using Tapatalk

Title: Re: Biden wants big 401k changes
Post by: ixtap on August 26, 2020, 09:06:02 AM
Lol the comments saying essentially "if this impacts you then you deserve it" are pretty small minded.  This potentially impacts a ton of middle class families trying to get a leg up on their retirements and brushing it off as they deserve it is pretty ignorant.  I see some arguments for this plan and against it but the vitriol towards families earning more than you do is just mind boggling to me.  I look at others doing better than me and think "wow good for you guys" not "I'm jealous and I hope you start doing worse".  Think before you hate guys.  This doesn't apply to everyone but surprisingly more of you than I would have hoped....

Sent from my moto g(6) plus using Tapatalk

Read again: most that are saying it does sound more equitable are those who also point out that it would directly impact them.  I don't see where you are getting the class warfare from.
Title: Re: Biden wants big 401k changes
Post by: I'm a red panda on August 26, 2020, 09:15:23 AM
Lol the comments saying essentially "if this impacts you then you deserve it" are pretty small minded.  This potentially impacts a ton of middle class families trying to get a leg up on their retirements and brushing it off as they deserve it is pretty ignorant.  I see some arguments for this plan and against it but the vitriol towards families earning more than you do is just mind boggling to me.  I look at others doing better than me and think "wow good for you guys" not "I'm jealous and I hope you start doing worse".  Think before you hate guys.  This doesn't apply to everyone but surprisingly more of you than I would have hoped....

Sent from my moto g(6) plus using Tapatalk

I don't recall anyone saying "you deserve it".  More that, if it impacts you, you are already a very rare saver. And the effect will likely be small. Someone in a middle class income range is not going to have a high tax liability, so shifting this money to taxable accounts will not have a huge effect.

How do you define the middle class?

This DOES affect me. I am not middle class.  The vast majority of anyone actually in the middle class (and not rich people calling themselves that. I know several millionaires who believe they are middle class) is not maxing a 401k. The change to the cap will have zero effect to them.

401ks already benefit higher income. Decreasing the amount that can be put into there makes them more equitable.  With company matches, the rich get richer with a 401k.
Title: Re: Biden wants big 401k changes
Post by: Michael in ABQ on August 26, 2020, 09:44:48 AM
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.
Title: Re: Biden wants big 401k changes
Post by: chesebert on August 26, 2020, 09:56:00 AM
A train wreck of a policy for folks seeking to FIRE. We are all racing to the bottom folks.

Totally disagree. If this proposed change would be a "train wreck" for your plans, you are very highly compensated and can afford it.
We just have to disagree. Roth IRA and Roth 401k are essential building blocks to a FIRE stash. The ability to take tax free gain is huge. I note Roth is not as useful for folks who make 200k+, rather these tools are much more useful to folks making 50-100k a year.

I don’t know if you have noticed this forum has transformed from a place where people talking about making 50-100k seeking yo FIRE to one that caters to top 2% wage earners with OMY. I think more people would have jumped on this back in the days because gutting the Roth program would certainly wreck havoc on their time to FIRE.
Title: Re: Biden wants big 401k changes
Post by: ixtap on August 26, 2020, 10:00:21 AM
A train wreck of a policy for folks seeking to FIRE. We are all racing to the bottom folks.

Totally disagree. If this proposed change would be a "train wreck" for your plans, you are very highly compensated and can afford it.
We just have to disagree. Roth IRA and Roth 401k are essential building blocks to a FIRE stash. The ability to take tax free gain is huge. I note Roth is not as useful for folks who makes 200k+, rather these tools are much more useful to folks making 50-100k a year.

I don’t know if you have noticed this forum has transformed from a place where people talking about making 50-100k seeking yo FIRE to one that caters to top 2% wage earners with OMY. I think more people would have jumped on this back in the days because gutting the Roth program would certainly wreck havoc on their time to FIRE.

Given our proposed spend in retirement, there isn't a huge difference between Roth and taxable accounts for us. It is nice to accumulate large Roth balances and not pay the taxes on gains while we are earning and Roth is particularly handy right now for ACA subsidies. Neither would wreck havoc on time to FIRE, although they would require adjustments.
Title: Re: Biden wants big 401k changes
Post by: wenchsenior on August 26, 2020, 10:06:18 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.
Title: Re: Biden wants big 401k changes
Post by: Paul der Krake on August 26, 2020, 10:23:20 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.
Title: Re: Biden wants big 401k changes
Post by: Ichabod on August 26, 2020, 10:26:34 AM
If the intent of tax deductions/credits is to incentivize behaviors, we would rather deductions be credits. Tax credits are worth the same amount to everyone, but deductions are only valuable to people in high tax brackets. Why would we only want to incentivize high earners to save for retirement?

From what I've read, switching from deductions to credits is the only thing proposed in Biden's policy. The more specific details are from a 2014 plan that proposed a similar policy. It lowers the contribution limit to the lesser of $20,000 or 20% of your income. If you make $100k or more, that's no change unless you're making catch-up contributions. It proposes a credit of 25%, which means single earners making less than $85k and MFJ earners making less than $171k come out ahead.

So high earners pay a little more in tax, everyone else saves a little bit. People making less than $100k can't contribute as much as before. The contribution limit makes sense. There's a government interest in people saving for retirement, less so in people saving for FIRE. The credit means poorer people are more encouraged to save for retirement, and these are the people mostly likely to require government assistance later on if they don't save. Rich people still get the majority of the benefit.

It makes sense to me, and it's also a pretty small, incremental change.
Title: Re: Biden wants big 401k changes
Post by: chesebert on August 26, 2020, 10:45:38 AM
I care more about elimination of the tax free gain from Roth retirement account gain than credit vs deduction. I agree credit vs deduction is a small change but getting rid of tax free gain for Roth is a much bigger deal.
Title: Re: Biden wants big 401k changes
Post by: Laura33 on August 26, 2020, 11:01:41 AM
Lol the comments saying essentially "if this impacts you then you deserve it" are pretty small minded.  This potentially impacts a ton of middle class families trying to get a leg up on their retirements and brushing it off as they deserve it is pretty ignorant.

This is objectively untrue.  The 2019 median family income in the US -- i.e., those who are truly "middle class" -- was $75K.  If that family has two kids ($4K child tax credit) and takes the standard deduction ($24K), their AGI will be under $50K.  That means that the bulk of their taxes will be paid at the 12% rate.  Ergo:

(a) Most people in that income range don't max their 401(k)s because their lifestyle won't allow them to save over half of their income -- saving $20K/yr would be an improvement;
 
(b) Mustachians will still have the ability to do so, because Mustachians can live on $30K/yr;

(c) Even Mustachians who make $75K/yr would be unable to take full advantage of the max allowed sheltered investment options (i.e., two profit-sharing options), because they don't even make that much combined; and

(d) People making $75K/yr will be better off getting a 25% tax break on up to $20K/yr saved than they are getting the 12% tax break they are getting now.  Since most of them don't come close to the potential $20K/yr cap now, they will not be hurt by lowering the amount that is eligible for the credit.  In fact, the additional tax break would free up more money and thus perhaps allow them to increase their savings. 

Honestly, some of the tax breaks that rich people like me can use to shelter income are just fundamentally ridiculous.  My DH and I combined can put away close to $90K yr without tax, just between our 401(k)s, the catch-up contributions, his match, and my profit-sharing.  He also gets a pension on top of that.  So fundamentally, we can shelter more of our income in a year than more than half of US families even make.  That's just wrong.  Cutting back on tax breaks for people like me, in order to give a better deal to that other 50%, is exactly what we should be doing.

Oh, and the idea that if we don't give high-earners incentive to save, we'll be supporting them, too?  LOL.  DH and I combined will be getting $70K+/- in SS.  Even if we'd never saved a dime, it's not like we'd be standing in the bread line.

Title: Re: Biden wants big 401k changes
Post by: mm1970 on August 26, 2020, 11:02:12 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.
Populist garbage?

Being poor is expensive.  Working low paying jobs and having rent take up 40-50% of your income is expensive.  And that just snowballs into late payments, overdraft fees, higher interest rates...
Title: Re: Biden wants big 401k changes
Post by: mm1970 on August 26, 2020, 11:04:49 AM
Quote
Honestly, some of the tax breaks that rich people like me can use to shelter income are just fundamentally ridiculous.  My DH and I combined can put away close to $90K yr without tax, just between our 401(k)s, the catch-up contributions, his match, and my profit-sharing.

Yep, how much do we shelter a year? $26k for me, $63,500 for the husband.
Title: Re: Biden wants big 401k changes
Post by: use2betrix on August 26, 2020, 11:18:36 AM
I’ve never understood how people can really think higher income earners who can max out their 401k are getting “so many tax breaks the poor can’t take advantage of.”

First, for many, a 401k is the only available tax break.

Second, is someone in a 30% really getting “such a better deal on taxes” than someone paying 12%? Is someone paying $90k in taxes somehow getting a better deal than someone paying $8k? What do you think helps our economy more?

Sure, they make more money, often with a lot of risk and sacrifice. Crazy that someone can choose to work 20 hrs a week and pay 12% taxes, while someone else can work their tail off 70 hrs/wk and in turn have to pay a 2.5x higher tax rate.

How about removing the 401k’s and tax breaks, and giving every person in the country a singular flat tax? (Yes, I remember Herman Cain proposing it years ago) that seems pretty fair.
Title: Re: Biden wants big 401k changes
Post by: TomTX on August 26, 2020, 11:30:54 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.

You sound extremely privileged.
Title: Re: Biden wants big 401k changes
Post by: PDXTabs on August 26, 2020, 11:42:58 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!

It's relevant to me, but just barely. It would lower my max contribution from $24.5k to $20k, and I'm extremely privileged. It would also bring the US 401k in line with the Canadian RRSP. However, I will point out that the RRSP limits are not use-it-or-lose-it like in the USA. That is, if I don't use my RRSP headroom in 2019 I can double up in 2020.
Title: Re: Biden wants big 401k changes
Post by: Laura33 on August 26, 2020, 11:53:54 AM
I’ve never understood how people can really think higher income earners who can max out their 401k are getting “so many tax breaks the poor can’t take advantage of.”

Strawman.  The question before us is not how we tax the wealthy.  It is whether the current 401(k) system benefits the rich more than the poor (clearly), whether we should provide some incentives to allow the poor to save more (debatable), whether it is reasonable to pay for increased tax breaks for the less-wealthy by limiting the tax breaks available to the more-wealthy (debatable), and whether the potential Biden proposals discussed in the article are reasonable ways to do so (also debatable).

Quote
Sure, they make more money, often with a lot of risk and sacrifice. Crazy that someone can choose to work 20 hrs a week and pay 12% taxes, while someone else can work their tail off 70 hrs/wk and in turn have to pay a 2.5x higher tax rate.

Another strawman:  Acting as though income is directly correlated to effort (and thus, if you're poor, it's your own fault, because you're not willing to work as hard as rich people).  I work far, far less than a minimum-wage worker, for many multiples of the reward. 

Really, if you think you're working too hard and earning so much that you're paying too much in taxes, there's an obvious solution:  work less.  Earn less.  You too have every right to work 20 hrs/week at a minimum-wage job and pay 12% in taxes. 

And yes, I get that that was your point:  do we really want to create an incentive for hard workers to work less?  But I see it the other way:  if the current tax rates were really such a disincentive to work hard and make lots of money, then many more people would be choosing the part-time minimum-wage option.  The fact that people choose to whine about the taxes they pay without actually changing their behavior suggests that they think the benefits they receive from those high incomes still outweigh the tax burdens. 
Title: Re: Biden wants big 401k changes
Post by: bigblock440 on August 26, 2020, 01:17:08 PM
The $20k/year isn't just employee contributions, it includes employer match too. 
Title: Re: Biden wants big 401k changes
Post by: ixtap on August 26, 2020, 01:19:08 PM
The $20k/year isn't just employee contributions, it includes employer match too.

The average employee + employer is 10.9%, still much lower than 20%, so for those earning under $100k, this is likely still a stretch.
Title: Re: Biden wants big 401k changes
Post by: FrogStash on August 26, 2020, 01:45:39 PM
Good to know, but 401k treatment isn't in my top dozen issues I've used to decide my vote.
Title: Re: Biden wants big 401k changes
Post by: Sanitary Engineer on August 26, 2020, 01:55:42 PM
I have been recently playing the fiscalship.org game. It has taught me that I am in favor of credits over deductions.  I am also in favor of pretty much every increase in taxes on the table, except a value added tax. 

Higher payroll taxes? Yes.
Increase tax bracket rates? Yes.
Raise corporate tax rate, tax companies for moving operations overseas, allow only standard deduction.
Institute wealth tax. Raise the estate tax.
Sugar, alcohol, gas, carbon, cigarette, cannabis, prostitution, opiates.  Legalize it all. Tax it all.

I am not exactly sure why yet, but I am pretty sure the Government needs to provide a robust social safety net, needs to actively support wealth equality, and needs to collect something approaching the amount of money it spends.

It seems to me that Biden's proposal is a bone to those who think revenues need to increase.
Title: Re: Biden wants big 401k changes
Post by: Debts_of_Despair on August 26, 2020, 02:53:42 PM
So workers in the upper tax brackets will be further punished for the having the "pleasure" of paying progressive taxes?  This is amazing!

What's next?  Giving student loan deduction to those that didn't pay tuition?
Title: Re: Biden wants big 401k changes
Post by: zinnie on August 26, 2020, 03:01:58 PM
I’m really happy to see this, thanks for sharing! 401k needs an overhaul and the credit seems  a much better option.

That said, a plan is just an intention. What a different world it would be if all candidates’ plans magically became reality on their first day in office, as these articles seem to imply! 😊
Title: Re: Biden wants big 401k changes
Post by: Steeze on August 26, 2020, 04:59:49 PM
So ... my contributions + employer match is max $20k/yr? The rest goes into a taxable account? I would probably pay $2k ish more in taxes each year with those rules. Sucks, not the end of the world.
Title: Re: Biden wants big 401k changes
Post by: mountain mustache on August 26, 2020, 05:22:22 PM
Sure, they make more money, often with a lot of risk and sacrifice. Crazy that someone can choose to work 20 hrs a week and pay 12% taxes, while someone else can work their tail off 70 hrs/wk and in turn have to pay a 2.5x higher tax rate.

Yes because every low income earner is only low income because they choose to only work 20 hours a week to pay 12% taxes. They never take risks or make huge sacrifices (you know, like having 3 jobs to make ends meet and never seeing their families)

Wow.
Title: Re: Biden wants big 401k changes
Post by: Sid Hoffman on August 26, 2020, 06:22:25 PM
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.
Title: Re: Biden wants big 401k changes
Post by: bmjohnson35 on August 26, 2020, 07:10:19 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. 
Title: Re: Biden wants big 401k changes
Post by: ixtap on August 26, 2020, 07:12:47 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.
Title: Re: Biden wants big 401k changes
Post by: TomTX on August 26, 2020, 07:17:28 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.

Yep, it would be far simpler if we just replaced all the current 401/403/457/IRA options with a single type of account and standardized rules.

I like the tax credit instead of a deduction idea. This also lets us scrap the current Saver's Credit.

I wouldn't get too hung up on the $20k limit. That's just something from a 6 year old proposal which is easily changed when an actual bill is being developed.
Title: Re: Biden wants big 401k changes
Post by: bmjohnson35 on August 26, 2020, 07:33:52 PM

As far as tax fairness is concerned, I feel the best way to address this concern is with a flat tax income rate.  It may be necessary to make the lowest income earners exempt, but beyond some point, it could be the same percentage for everyone above.  I think this should apply to personal and business income taxes.  It would negatively impact some existing businesses (accountants, lawyers, tax preparers, etc.), but it could reduce the size of the IRS significantly.  It would also impact how companies conduct business, but it would remove the many irrational practices that companies use to reduce their tax burden.  I don't think it will happen in my lifetime, but I think it is the most logical and equitable way to do it.  It works with sales tax, why not income taxes as well?
Title: Re: Biden wants big 401k changes
Post by: Archipelago on August 26, 2020, 10:05:45 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?
Title: Re: Biden wants big 401k changes
Post by: ixtap on August 26, 2020, 10:13:50 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.
Title: Re: Biden wants big 401k changes
Post by: Poundwise 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.



Title: Re: Biden wants big 401k changes
Post by: Monerexia 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. 
Title: Re: Biden wants big 401k changes
Post by: Monerexia 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
Title: Re: Biden wants big 401k changes
Post by: seattlecyclone 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.
Title: Re: Biden wants big 401k changes
Post by: js82 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.
Title: Re: Biden wants big 401k changes
Post by: rantk81 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.
Title: Re: Biden wants big 401k changes
Post by: Much Fishing to Do 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.
Title: Re: Biden wants big 401k changes
Post by: Sugaree 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.
Title: Re: Biden wants big 401k changes
Post by: ericrugiero 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? 
Title: Re: Biden wants big 401k changes
Post by: Steeze 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.
Title: Re: Biden wants big 401k changes
Post by: Buffaloski Boris 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.
Title: Re: Biden wants big 401k changes
Post by: bmjohnson35 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.
Title: Re: Biden wants big 401k changes
Post by: Davnasty 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?
Title: Re: Biden wants big 401k changes
Post by: EscapeVelocity2020 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?
Title: Re: Biden wants big 401k changes
Post by: bigblock440 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.
Title: Re: Biden wants big 401k changes
Post by: Sanitary Engineer 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.
Title: Re: Biden wants big 401k changes
Post by: Buffaloski Boris 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.
Title: Re: Biden wants big 401k changes
Post by: mm1970 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...
Title: Re: Biden wants big 401k changes
Post by: mm1970 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). 
Title: Re: Biden wants big 401k changes
Post by: ixtap 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.
Title: Re: Biden wants big 401k changes
Post by: Sid Hoffman 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.
Title: Re: Biden wants big 401k changes
Post by: Buffaloski Boris 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. 
Title: Re: Biden wants big 401k changes
Post by: PDXTabs 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.
Title: Re: Biden wants big 401k changes
Post by: Bucksandreds 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.
Title: Re: Biden wants big 401k changes
Post by: teen persuasion 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.
Title: Re: Biden wants big 401k changes
Post by: EscapeVelocity2020 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 (https://taxfoundation.org/taxes-on-the-rich-1950s-not-high/).
Title: Re: Biden wants big 401k changes
Post by: Abe 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 (https://taxfoundation.org/taxes-on-the-rich-1950s-not-high/).

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.
Title: Re: Biden wants big 401k changes
Post by: Sid Hoffman 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.
Title: Re: Biden wants big 401k changes
Post by: Fomerly known as something 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.
Title: Re: Biden wants big 401k changes
Post by: BTDretire 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.
Title: Re: Biden wants big 401k changes
Post by: index 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.     
Title: Re: Biden wants big 401k changes
Post by: zolotiyeruki 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.
Title: Re: Biden wants big 401k changes
Post by: Sid Hoffman 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.
Title: Re: Biden wants big 401k changes
Post by: ixtap 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.
Title: Re: Biden wants big 401k changes
Post by: Simpli-Fi 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?
Title: Re: Biden wants big 401k changes
Post by: I'm a red panda 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.
Title: Re: Biden wants big 401k changes
Post by: FrogStash 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. 
Title: Re: Biden wants big 401k changes
Post by: the_fixer 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.


Sent from my iPhone using Tapatalk
Title: Re: Biden wants big 401k changes
Post by: Bird In Hand 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.
Title: Re: Biden wants big 401k changes
Post by: aspire_to_fire 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?
Title: Re: Biden wants big 401k changes
Post by: rantk81 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.
Title: Re: Biden wants big 401k changes
Post by: terran 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.
Title: Re: Biden wants big 401k changes
Post by: SauronHimself 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.
Title: Re: Biden wants big 401k changes
Post by: rantk81 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.
Title: Re: Biden wants big 401k changes
Post by: Zamboni 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.
Title: Re: Biden wants big 401k changes
Post by: zolotiyeruki 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.
Title: Re: Biden wants big 401k changes
Post by: Zamboni on September 21, 2020, 04:26:08 PM
https://apnews.com/1ef23f018730d2dd82545515878bf118 (https://apnews.com/1ef23f018730d2dd82545515878bf118)
Title: Re: Biden wants big 401k changes
Post by: neophyte 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.
Title: Re: Biden wants big 401k changes
Post by: SauronHimself 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.
Title: Re: Biden wants big 401k changes
Post by: zolotiyeruki on September 22, 2020, 07:21:39 AM
https://apnews.com/1ef23f018730d2dd82545515878bf118 (https://apnews.com/1ef23f018730d2dd82545515878bf118)
Ah, yes.  Of course, it'd only be accelerating the inevitable...
Title: Re: Biden wants big 401k changes
Post by: slappy on September 22, 2020, 07:53:27 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.

I feel like if there was no penalty, people would raid the accounts more often and end up with nothing saved for retirement. I used to work at a bank and a local small business would come in every year with the SEP IRA contributions for the employees. All of the employees literally turned around and cashed the check and considered it a bonus. It was a huge pain because I had to open accounts for all of them, only to have them turn and around and just cash out. Plus, they didn't have retirement savings. I mean, in that case, the penalty didn't bother them, but hopefully the penalty bothers some people enough to look elsewhere if they need cash.
Title: Re: Biden wants big 401k changes
Post by: zolotiyeruki on September 22, 2020, 08:11:53 AM
This could be an interesting thought experiment--if we were in charge of tweaking retirement savings laws, how could we modify things so that responsible early retirees could access their funds penalty-free, while at the same time discouraging spendthrifts from blowing it all?

I suppose a 72t/SEPP sort of fits the bill, but I wish you could pull more than just a couple percent out each year.  Having not put enough in post-tax investments (roth, taxable) earlier, I'm now trying to figure out how to boost those accounts enough to set up a Roth ladder, while too much of my savings sit in the less-accessible tax-deferred accounts.
Title: Re: Biden wants big 401k changes
Post by: terran on September 22, 2020, 09:46:44 AM
This could be an interesting thought experiment--if we were in charge of tweaking retirement savings laws, how could we modify things so that responsible early retirees could access their funds penalty-free, while at the same time discouraging spendthrifts from blowing it all?

I suppose a 72t/SEPP sort of fits the bill, but I wish you could pull more than just a couple percent out each year.  Having not put enough in post-tax investments (roth, taxable) earlier, I'm now trying to figure out how to boost those accounts enough to set up a Roth ladder, while too much of my savings sit in the less-accessible tax-deferred accounts.

How about this: you can withdraw the amount you contribute to a Roth IRA at any time without tax or penalty. You can also covert from traditional to Roth (which is taxable, but no penalty) and as long as you wait 5 years (enough time to deter people who just want the money now) you can withdraw that amount without paying tax or penalty. That seems like it would work pretty well. It's also what we have.

I'm sure there are some tweaks that would simplify things (maybe just make it that anything that's been a Roth IRA for 5 years, including gains, can  be withdrawn), but I think the concept of a slightly convoluted process involving a waiting period does a good job of ensuring that only sophisticated investors who know what they're doing will withdraw, unless they're the type to completely ignore the penalty.
Title: Re: Biden wants big 401k changes
Post by: TomTX on September 22, 2020, 11:14:35 AM
https://apnews.com/1ef23f018730d2dd82545515878bf118 (https://apnews.com/1ef23f018730d2dd82545515878bf118)
Ah, yes.  Of course, it'd only be accelerating the inevitable...

Last I checked, inflows would match outflows if they removed the income cap from SS tax. Similarly, funding would be more than solved by adding SS tax to cap gains.
Title: Re: Biden wants big 401k changes
Post by: joleran on September 22, 2020, 12:23:32 PM
Last I checked, inflows would match outflows if they removed the income cap from SS tax. Similarly, funding would be more than solved by adding SS tax to cap gains.

Doing this would probably introduce an "infinite bend point" after the current SS max with a shallow slope though, so outflows would increase.  Otherwise, everything over the current cap would just go "poof".  That is kind of like the ACA investment and medicare surcharge though, so not unprecedented.  Also wouldn't hurt early retirees even a little, so easy sell around here.

Edit:  Oh, not the SS tax to cap gains though - that would be absolutely terrible.
Title: Re: Biden wants big 401k changes
Post by: Zamboni on September 22, 2020, 01:05:42 PM
https://apnews.com/1ef23f018730d2dd82545515878bf118 (https://apnews.com/1ef23f018730d2dd82545515878bf118)
Ah, yes.  Of course, it'd only be accelerating the inevitable...

My Mom was right there with your line of thinking 40 years ago, telling me she was absolutely sure she'd never get to collect social security. She has now collected it for 18 years as her sole source of retirement income. *shrugs*

Somehow, we've had government in those 40 years that has managed to not bankrupt social security. Trump's plan will do it in a very short period of time because **news flash** he doesn't care one iota if average Americans have to work until they die or live handicapped begging in a gutter.
Title: Re: Biden wants big 401k changes
Post by: zolotiyeruki on September 22, 2020, 03:20:25 PM
https://apnews.com/1ef23f018730d2dd82545515878bf118 (https://apnews.com/1ef23f018730d2dd82545515878bf118)
Ah, yes.  Of course, it'd only be accelerating the inevitable...
My Mom was right there with your line of thinking 40 years ago, telling me she was absolutely sure she'd never get to collect social security. She has now collected it for 18 years as her sole source of retirement income. *shrugs*
In the last 40 years, we've also seen the full retirement age increased from 65 to 67, SS benefits have become partially taxable (and the thresholds are not indexed to inflation), and the FICA tax rate for SS has increased from 5% to 6.2%.
Title: Re: Biden wants big 401k changes
Post by: TomTX on September 22, 2020, 06:14:39 PM
Last I checked, inflows would match outflows if they removed the income cap from SS tax. Similarly, funding would be more than solved by adding SS tax to cap gains.

Doing this would probably introduce an "infinite bend point" after the current SS max with a shallow slope though, so outflows would increase.  Otherwise, everything over the current cap would just go "poof".  That is kind of like the ACA investment and medicare surcharge though, so not unprecedented.  Also wouldn't hurt early retirees even a little, so easy sell around here.

Wouldn't be difficult to put a cap on payout at something like 250-300% of FPL, and that should resolve your payout concern.
Title: Re: Biden wants big 401k changes
Post by: Paul der Krake on September 22, 2020, 06:40:12 PM
When someone tells you they aren’t going to collect Social Security because it will be broke, this is as certain a sign as you’re ever going to get that this person doesn’t understand a thing about fiscal policy and you can stop listening now.
Title: Re: Biden wants big 401k changes
Post by: Zamboni on September 22, 2020, 07:09:12 PM
^Yeah, that definitely describes my Mom! Lol, I lived in a sea of adult paranoia as a child.

The age for full benefits needed to go up since the average lifespan has gone up (at least it went up for awhile . . . I think now it might be flat or even going back down.) Modifications to benefits over time is reasonable. Doing something intentionally to wipe it out in a couple of years, which is essentially what Trump has proposed, is something else entirely.
Title: Re: Biden wants big 401k changes
Post by: I'm a red panda on September 23, 2020, 06:24:50 AM
When someone tells you they aren’t going to collect Social Security because it will be broke, this is as certain a sign as you’re ever going to get that this person doesn’t understand a thing about fiscal policy and you can stop listening now.

Fiscal policy depends on leaders though. We currently have a leader who is intent on stopping social security. 
Title: Re: Biden wants big 401k changes
Post by: zolotiyeruki on September 23, 2020, 01:35:46 PM
When someone tells you they aren’t going to collect Social Security because it will be broke, this is as certain a sign as you’re ever going to get that this person doesn’t understand a thing about fiscal policy and you can stop listening now.
Fiscal policy depends on leaders though. We currently have a leader who is intent on stopping social security.
As unrealistic as Trump's proposal is, it doesn't sound like "stopping social security" is his goal.

I had to chuckle at this excerpt from the AP link: "It also could force people to cut back on the spending that drives growth so they can save for their own retirement and health care needs if they believe the government backstop is in jeopardy."  Oh, my, people might have to make sacrifices now to save up for their own retirement. quelle horreur C'mon, isn't this what this forum is all about?

This is one of the major reasons why I have a philosophical objection to subsidies.  Sure, it helps a few, but people/organizations/governments/companies develop a dependency on the subsidy.  And once a subsidy have metastasized, it's nearly impossible, politically speaking, to unwind it, no matter how bad the collective effect is on the country, because it's easy to find someone to put on the news that will suffer.
Title: Re: Biden wants big 401k changes
Post by: ChickenStash on September 23, 2020, 03:36:21 PM
Not that anyone would ask me, but if I had my way, I'd like to see the 401k-style plans combined with IRAs into one plan with much higher limits maybe 2-3x what they are today. It would be employer managed with matching, self-managed, or both (combined contribution limit applies). Allow Roth or traditional style contributions. Penalty-free withdrawal would be based on a "retirement test" of some sort - W2/1099 income < some multiple of the poverty line sounds good at first blush and that's fine if it picks up the temporarily unemployed. And for the big third-rail, SS (old age) distributions would be means-tested and phased out up to a small multiple of the poverty line (1.5x sounds good) with no salary cap for contributions and the distribution age indexed to some CDC/NIH/WHO life expectancy value.

That said, no one would ever do any of that because we'd probably wind up with nearly no one saving when they are young (like today) and most old people living on the streets fighting over who gets the new refrigerator box to sleep in.
Title: Re: Biden wants big 401k changes
Post by: Zamboni on September 23, 2020, 04:42:53 PM
Social security is collective American retirement and disability insurance that almost all working people are mandated to "pay premiums" into.

Having been to countries where there is no such safety net and seen first hand where that leads, I am perfectly content to pay into social security, and I'll be pretty pissed if the current corruption in our government messes it up.
Title: Re: Biden wants big 401k changes
Post by: Michael in ABQ on September 23, 2020, 08:35:51 PM
When someone tells you they aren’t going to collect Social Security because it will be broke, this is as certain a sign as you’re ever going to get that this person doesn’t understand a thing about fiscal policy and you can stop listening now.

I have a healthy skepticism that I will receive "full" old age social security benefits in 30+ years when I'm eligible. Social Security is a pay as you go system. Ultimately it's all coming out of the same bucket of tax money, even if we have a payroll tax ostensibly dedicated to funding it. When we're down to 1 or 2 workers to pay for benefits for one retiree, it's not sustainable at the current level of benefits. Something will have to give. Older age to collect, lower benefits, or higher taxes.
Title: Re: Biden wants big 401k changes
Post by: Paul der Krake on September 23, 2020, 11:14:06 PM
When someone tells you they aren’t going to collect Social Security because it will be broke, this is as certain a sign as you’re ever going to get that this person doesn’t understand a thing about fiscal policy and you can stop listening now.

I have a healthy skepticism that I will receive "full" old age social security benefits in 30+ years when I'm eligible. Social Security is a pay as you go system. Ultimately it's all coming out of the same bucket of tax money, even if we have a payroll tax ostensibly dedicated to funding it. When we're done to 1 or 2 workers to pay for benefits for one retiree, it's not sustainable at the current level of benefits. Something will have to give. Older age to collect, lower benefits, or higher taxes.
Yes. That’s fine. 0% and 75% (or whatever reasonable estimate you can come up with) are radically different outcomes. One of them invites healthy discussion. The other invites an eye roll.
Title: Re: Biden wants big 401k changes
Post by: Sugaree on September 24, 2020, 06:23:08 AM
When someone tells you they aren’t going to collect Social Security because it will be broke, this is as certain a sign as you’re ever going to get that this person doesn’t understand a thing about fiscal policy and you can stop listening now.

I have a healthy skepticism that I will receive "full" old age social security benefits in 30+ years when I'm eligible. Social Security is a pay as you go system. Ultimately it's all coming out of the same bucket of tax money, even if we have a payroll tax ostensibly dedicated to funding it. When we're done to 1 or 2 workers to pay for benefits for one retiree, it's not sustainable at the current level of benefits. Something will have to give. Older age to collect, lower benefits, or higher taxes.

I agree.  I generally only factor in 75% of what the current estimated payments are. 
Title: Re: Biden wants big 401k changes
Post by: wenchsenior on September 24, 2020, 08:22:49 AM
When someone tells you they aren’t going to collect Social Security because it will be broke, this is as certain a sign as you’re ever going to get that this person doesn’t understand a thing about fiscal policy and you can stop listening now.

I have a healthy skepticism that I will receive "full" old age social security benefits in 30+ years when I'm eligible. Social Security is a pay as you go system. Ultimately it's all coming out of the same bucket of tax money, even if we have a payroll tax ostensibly dedicated to funding it. When we're done to 1 or 2 workers to pay for benefits for one retiree, it's not sustainable at the current level of benefits. Something will have to give. Older age to collect, lower benefits, or higher taxes.
Yes. That’s fine. 0% and 75% (or whatever reasonable estimate you can come up with) are radically different outcomes. One of them invites healthy discussion. The other invites an eye roll.

Exactly. It's crazy to me that people really think they will get "literally nothing" back from SS.  You might get less than promised, but you aren't going to get nothing unless the number of people employed in the U.S. goes to zero.  I also assume ~ 75% of currently promised benefits.
Title: Re: Biden wants big 401k changes
Post by: dresden on September 25, 2020, 09:03:22 AM
I am politically independent, but definitely am more concerned about what will happen to ACA at this point.  It seems like with a change to the supreme court it could be gone by the end of the year.

That would impact many early retirees and people planning to retire early.
Title: Re: Biden wants big 401k changes
Post by: Schaefer Light on September 25, 2020, 03:56:40 PM
When someone tells you they aren’t going to collect Social Security because it will be broke, this is as certain a sign as you’re ever going to get that this person doesn’t understand a thing about fiscal policy and you can stop listening now.

I have a healthy skepticism that I will receive "full" old age social security benefits in 30+ years when I'm eligible. Social Security is a pay as you go system. Ultimately it's all coming out of the same bucket of tax money, even if we have a payroll tax ostensibly dedicated to funding it. When we're done to 1 or 2 workers to pay for benefits for one retiree, it's not sustainable at the current level of benefits. Something will have to give. Older age to collect, lower benefits, or higher taxes.
Yes. That’s fine. 0% and 75% (or whatever reasonable estimate you can come up with) are radically different outcomes. One of them invites healthy discussion. The other invites an eye roll.

Exactly. It's crazy to me that people really think they will get "literally nothing" back from SS.  You might get less than promised, but you aren't going to get nothing unless the number of people employed in the U.S. goes to zero.  I also assume ~ 75% of currently promised benefits.
My concern is that some type of means-testing will be implemented and people who have saved a lot of money for retirement won't get squat.  A politician could easily spin this into something along the lines of: "millionaires shouldn't be collecting SS when that money could be going to struggling/disadvantaged/poor/minority seniors who weren't able to save for retirement".  It's really class warfare (and not lack of funding) that makes me think I could end up getting nothing.
Title: Re: Biden wants big 401k changes
Post by: robartsd on September 25, 2020, 04:30:54 PM
The CARES Act does add a 2020-only $300 deduction against charitable contributions for people who claim the standard deduction.
No, the $300 above the line deduction for those who do not itemize deductions does not expire; however the increased limits for itemized deduction of charitable contributions are only for 2020.
Title: Re: Biden wants big 401k changes
Post by: robartsd on September 25, 2020, 05:02:10 PM
I'm assuming Biden's idea for refundable tax credit instead of deduction would be for contributions to accounts that otherwise would behave like traditional 401k/IRA accounts. I'm not sure how much I care about the difference. I think I'd benefit from such a plan (above median income, but relatively low income for this forum).

As far as other reforms that would increase tax liability of the wealthy, my favorite would be taxing capital gains at the same rate as ordinary income. Simplify tax structure and take away the biggest structural advantage the wealthy have without putting much extra burden on top earners.

I would consider increasing (or eliminating) the cap on wages subject to SS. I don't think FICA taxes should apply to capital gains (but if needed, revenue from changing capital gains to be taxed the same as income could be used to shore up FICA programs). The way the bend points work, I see the space before you hit the first bend point as simply paying for your retirement benefit. Above the first bend point, you're funding the disability insurance part of SS, by the time you reach the second bend point, you've already paid for any benefits you could ever receive and are subsidizing those who earn less. I'm sure high earners wouldn't like having even more of their income subject to this, we can at least let them get the tiny extra SS retirement benefit later.
Title: Re: Biden wants big 401k changes
Post by: LetItGrow on September 26, 2020, 12:12:25 PM
When someone tells you they aren’t going to collect Social Security because it will be broke, this is as certain a sign as you’re ever going to get that this person doesn’t understand a thing about fiscal policy and you can stop listening now.

I have a healthy skepticism that I will receive "full" old age social security benefits in 30+ years when I'm eligible. Social Security is a pay as you go system. Ultimately it's all coming out of the same bucket of tax money, even if we have a payroll tax ostensibly dedicated to funding it. When we're done to 1 or 2 workers to pay for benefits for one retiree, it's not sustainable at the current level of benefits. Something will have to give. Older age to collect, lower benefits, or higher taxes.
Yes. That’s fine. 0% and 75% (or whatever reasonable estimate you can come up with) are radically different outcomes. One of them invites healthy discussion. The other invites an eye roll.

Exactly. It's crazy to me that people really think they will get "literally nothing" back from SS.  You might get less than promised, but you aren't going to get nothing unless the number of people employed in the U.S. goes to zero.  I also assume ~ 75% of currently promised benefits.
My concern is that some type of means-testing will be implemented and people who have saved a lot of money for retirement won't get squat.  A politician could easily spin this into something along the lines of: "millionaires shouldn't be collecting SS when that money could be going to struggling/disadvantaged/poor/minority seniors who weren't able to save for retirement".  It's really class warfare (and not lack of funding) that makes me think I could end up getting nothing.

Yeah, this is a worry. Talk about driving a divide potentially into some chunks of society.
Title: Re: Biden wants big 401k changes
Post by: Paul der Krake on September 26, 2020, 02:56:47 PM
My concern is that some type of means-testing will be implemented and people who have saved a lot of money for retirement won't get squat.  A politician could easily spin this into something along the lines of: "millionaires shouldn't be collecting SS when that money could be going to struggling/disadvantaged/poor/minority seniors who weren't able to save for retirement".  It's really class warfare (and not lack of funding) that makes me think I could end up getting nothing.
There is no scenario in which “a politician” spins up the need for means testing and decides to exclude millionaires out of their SS benefits.

First, it would require an act of Congress. It’s pretty darn hard to be elected to Congress, so there tends to be almost only high earners and millionaires in both chambers. Good luck convincing them to cut themselves out of their own contributions.

Second, means testing only really works for poor people when we want to make sure they don’t get too much free food or whatever. You can’t realistically means test millionaires because wealth takes too many forms. Real estate. Trusts. Blind trusts. Business interests. Unexercised options. Everything I just listed, but the overseas kind. There are tens of millions of millionaires in this country, and they all they have their unique way of being wealthy. Unless you hire a million accountants and enforcement officials, good luck getting any sort of legislation with actual teeth.

Seriously people. Worry about more pressing things. We know SS will likely change in our lifetimes, because literally no wide reaching program stays unchanged for 50 years. No need to jump to the worst possible outcome.