Our federal government needs to reduce its massive deficit – and among the many revenue-generating ideas being discussed in Congress, two in particular could have disturbing consequences for employees saving for retirement.<\/p>\n
There is no need to panic yet \u2013 these ideas are a long way from law. Still, a new report from the nonpartisan Employee Benefit Research Institute (EBRI) indicates that the bipartisan \u201csuper committee\u201d of 12 legislators assigned to slash the deficit may be giving them at least a casual look.<\/p>\n
What if you couldn\u2019t deduct 401(k) contributions?<\/strong>a In September, representatives from the Brookings Institution proposed a remodel of current 401(k) plan rules at a Senate Finance Committee hearing. The big idea: end tax-deductible contributions to 401(k)s. Both employee salary deferrals and employer matches would be taxed. (Traditional IRA contributions would also be rendered taxable by this proposal.)<\/p>\n So by this concept, you would be taxed twice: once on your 401(k) contributions and once again on your 401(k) withdrawals. <\/p>\n In apology, the federal government would provide employees (and their employers) with its own version of a match: qualified employer and employee contributions would be eligible for a flat-rate refundable tax credit which would be deposited directly into the 401(k). This credit would either be 18% or 30%.<\/p>\n We all know most people don\u2019t save enough for retirement. How would being taxed twice encourage them? In January 2011, an EBRI poll found that 25% of employees would cut back on 401(k) contributions if they weren\u2019t able to deduct them.<\/p>\n What if 401(k) contributions were capped?<\/strong> Another proposal \u2013 courtesy of the National Commission on Fiscal Responsibility and Reform \u2013 would put a ceiling on annual contributions to 401(k)s and other defined-contribution retirement plans. The so-called \u201c20\/20\u201d modification would limit total annual employer and worker 401(k) contributions to either $20,000 or 20% of an employee\u2019s income, whichever is lower. So this proposal could hurt low-income and high-income workers.<\/p>\n The \u201csuper committee\u201d of 12 is under pressure to come up with a plan to hack $1.2 trillion off the federal deficit this month \u2013 and when it comes to preferential tax treatment in America, 401(k)s are a nice example. Would the committee dare get behind either of these proposals? Could any politician get reelected amid cries that (s)he wants to cap or double-tax your retirement savings? <\/p>\n As Congress searches for revenue, the tax treatment of 401(k)s may get a second look \u2013 and a third. As EBRI research director Jack VanDerhei told a reporter from the financial services industry website AdvisorOne, \u201cI can virtually guarantee that the whole concept of [401(k)] tax preferences will be reexamined in 2012 and 2013.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":" Our federal government needs to reduce its massive deficit – and among the many revenue-generating ideas being discussed in Congress, two in particular could have disturbing consequences for employees saving for retirement.<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[18],"tags":[57,24,26,14,15],"class_list":["post-1551","post","type-post","status-publish","format-standard","hentry","category-blog","tag-401k","tag-401k-rollover-advice","tag-401k-rollover-retirement","tag-bill-losey","tag-retirement-advisor"],"_links":{"self":[{"href":"https:\/\/billlosey.com\/knowledge-center\/wp-json\/wp\/v2\/posts\/1551","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/billlosey.com\/knowledge-center\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/billlosey.com\/knowledge-center\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/billlosey.com\/knowledge-center\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/billlosey.com\/knowledge-center\/wp-json\/wp\/v2\/comments?post=1551"}],"version-history":[{"count":0,"href":"https:\/\/billlosey.com\/knowledge-center\/wp-json\/wp\/v2\/posts\/1551\/revisions"}],"wp:attachment":[{"href":"https:\/\/billlosey.com\/knowledge-center\/wp-json\/wp\/v2\/media?parent=1551"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/billlosey.com\/knowledge-center\/wp-json\/wp\/v2\/categories?post=1551"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/billlosey.com\/knowledge-center\/wp-json\/wp\/v2\/tags?post=1551"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}