Author Topic: Biden wants big 401k changes  (Read 10740 times)


PDXTabs

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Re: Biden wants big 401k changes
« Reply #1 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.

bloodaxe

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Re: Biden wants big 401k changes
« Reply #2 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.

seattlecyclone

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Re: Biden wants big 401k changes
« Reply #3 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.

SwordGuy

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Re: Biden wants big 401k changes
« Reply #4 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!


Davnasty

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Re: Biden wants big 401k changes
« Reply #5 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.

Paul der Krake

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Re: Biden wants big 401k changes
« Reply #6 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!




seattlecyclone

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Re: Biden wants big 401k changes
« Reply #7 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.

Paul der Krake

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Re: Biden wants big 401k changes
« Reply #8 on: August 25, 2020, 09:58:33 PM »
Relevant XKCD:


chesebert

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Re: Biden wants big 401k changes
« Reply #9 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.

Fomerly known as something

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Re: Biden wants big 401k changes
« Reply #10 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.

I'm a red panda

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Re: Biden wants big 401k changes
« Reply #11 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.

Freedom2016

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Re: Biden wants big 401k changes
« Reply #12 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.

wageslave23

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Re: Biden wants big 401k changes
« Reply #13 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.

KungfuRabbit

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Re: Biden wants big 401k changes
« Reply #14 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.     

Greenstache

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Re: Biden wants big 401k changes
« Reply #15 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).

TomTX

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Re: Biden wants big 401k changes
« Reply #16 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.

Kazyan

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Re: Biden wants big 401k changes
« Reply #17 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.

Assetup

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Re: Biden wants big 401k changes
« Reply #18 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....

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ixtap

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Re: Biden wants big 401k changes
« Reply #19 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....

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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.

I'm a red panda

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Re: Biden wants big 401k changes
« Reply #20 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....

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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.

Michael in ABQ

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Re: Biden wants big 401k changes
« Reply #21 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.
« Last Edit: August 26, 2020, 09:57:08 AM by Michael in ABQ »

chesebert

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Re: Biden wants big 401k changes
« Reply #22 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.
« Last Edit: August 26, 2020, 09:57:43 AM by chesebert »

ixtap

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Re: Biden wants big 401k changes
« Reply #23 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.

wenchsenior

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Re: Biden wants big 401k changes
« Reply #24 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.

Paul der Krake

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Re: Biden wants big 401k changes
« Reply #25 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.

Ichabod

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Re: Biden wants big 401k changes
« Reply #26 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.

chesebert

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Re: Biden wants big 401k changes
« Reply #27 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.

Laura33

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Re: Biden wants big 401k changes
« Reply #28 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.


mm1970

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Re: Biden wants big 401k changes
« Reply #29 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...

mm1970

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Re: Biden wants big 401k changes
« Reply #30 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.

use2betrix

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Re: Biden wants big 401k changes
« Reply #31 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.

TomTX

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Re: Biden wants big 401k changes
« Reply #32 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.

PDXTabs

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Re: Biden wants big 401k changes
« Reply #33 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.

Laura33

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Re: Biden wants big 401k changes
« Reply #34 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. 

bigblock440

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Re: Biden wants big 401k changes
« Reply #35 on: August 26, 2020, 01:17:08 PM »
The $20k/year isn't just employee contributions, it includes employer match too. 

ixtap

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Re: Biden wants big 401k changes
« Reply #36 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.

FrogStash

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Re: Biden wants big 401k changes
« Reply #37 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.

Sanitary Engineer

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Re: Biden wants big 401k changes
« Reply #38 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.

Debts_of_Despair

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Re: Biden wants big 401k changes
« Reply #39 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?
« Last Edit: August 26, 2020, 03:17:49 PM by Debts_of_Despair »

zinnie

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Re: Biden wants big 401k changes
« Reply #40 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! 😊

Steeze

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Re: Biden wants big 401k changes
« Reply #41 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.

mountain mustache

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Re: Biden wants big 401k changes
« Reply #42 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.

Sid Hoffman

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Re: Biden wants big 401k changes
« Reply #43 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.

bmjohnson35

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Re: Biden wants big 401k changes
« Reply #44 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. 

ixtap

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Re: Biden wants big 401k changes
« Reply #45 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.

TomTX

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Re: Biden wants big 401k changes
« Reply #46 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.

bmjohnson35

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Re: Biden wants big 401k changes
« Reply #47 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?

Archipelago

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Re: Biden wants big 401k changes
« Reply #48 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?

ixtap

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Re: Biden wants big 401k changes
« Reply #49 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.