Congress Is Coming After Your 401(k)

Tyler Durden's picture

Authored by Ted Bauman via BanyanHill.com,

How do I despise thee, O Congress? Let me count the ways.

Don’t take my word for it: 75% of Americans disapprove of the job our representatives are doing. It’s things like this that explain why:

Whilst only about 13% of U.S. employees nationwide enjoy a retirement fund that assures stable, lifelong income, all 535 members of Congress do … courtesy of Uncle Sam.

Members of Congress participate in the Federal Employees Retirement System, which provides pension benefits of which most American workers can only dream.

Private retirement savers often pay management fees that can exceed 1% annually on lousy investment choices. Members of Congress pay a maximum of 0.039% for funds guaranteed to match the market.

A proposal floating around in Republican circles in Washington would add insult to injury: They want to end the tax-deductibility of your pension contributions so they can give a $1.5 billion tax break to U.S. corporations.

Oops.

Give and Take

Congress is reportedly considering whether to reduce the benefits of contributing to a 401(k) and similar retirement plans.

That’s because it wants to reform corporate taxes, cutting the rate from 35% to 15%. That blasts a meteor-sized hole in the federal budget.

Cue the pension police.

According to the latest report from the Joint Committee on Taxation, the exclusion of contributions to and earnings of defined contribution plans will cost the federal government more than $584 billion over the next five years.

The new proposal would treat all 401(k) and traditional IRA contributions as if they were Roth IRA contributions. You’d lose the tax exclusion of those contributions, but your future 401(k)/IRA earnings and appreciation would be tax-free. Some think this could raise $1.5 trillion in additional tax revenue over the next decade, making the corporate tax slash feasible.

Unless they decide to tax retirement earnings and appreciation too.

End of the Roth?

Right now, any income and gains your 401(k) and/or traditional IRA generate don’t get taxed until you make withdrawals.

But a new proposal would impose a 15% tax on those annual gains, raising another $1.5 trillion over the next decade. That would be even worse than ordinary taxable investment accounts, however, where one can defer capital gains tax simply by not selling shares.

“It’s not really a question of whether retirement plans will get a haircut, but of how much,” said Bradford Campbell, former assistant secretary of labor for employee benefits under President George W. Bush. Replacing revenue lost to tax cuts, he said, is “a game of winners and losers, and the retirement system is poised to be one of the losers.”

My sources in Washington tell me that the Trump team is definitely planning to push a tax reform like President Ronald Reagan’s in 1986 — closing loopholes as well as cutting rates. It won’t be just a tax cut, as had been rumored.

Like the retirement contribution exclusion, the proposals also do away with the state and local income tax deductions. If you live in a place such as New York or California, that’s a very big deal indeed.

Who Cares?

There is no more-contested issue in U.S. politics than federal tax reform. So who is likely to win and lose if tax reform follows President Donald Trump’s proposals?

First, his administration can’t count on unqualified support from the base of voters who put Trump in the White House.

Although low-income voters would probably come out neutral since they tend not to have 401(k) or IRA plans, households earning $50,000 or more — most of which voted for the president — would take a serious hit if retirement contributions were subject to tax upfront.

High-income families probably won’t care one way or another since they tend to hit their retirement contribution limits fairly quickly anyway.

Second, the corporate side of the proposals are fraught. Although Trump’s plan cuts the corporate rate from 35% to 15%, many U.S. corporations already pay less than 15% thanks to loopholes — especially in energy, utilities and heavy industry.

They will probably oppose the plan since it closes those loopholes. That makes passage uncertain.

How to Prepare

Uncertainty surrounding something we’ve come to take for granted — tax-advantaged retirement plans — means you need to look at alternatives as a matter of urgency.

Another alternative is to consider the advantages of life insurance.

As I’ve written about in The Bauman Letter, certain types of whole life policies are much better than traditional retirement vehicles. That’s because the IRS currently treats “distributions” from such policies as nontaxable loans against the policy, which are retired when it pays out at your passing.

Life insurance trusts, on the other hand, might become much more attractive vehicles for passing money on to your heirs if the relative returns to heritable IRS accounts take a nosedive.

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nuubee's picture

If this has a chance of passing, I would be a fool not to withdraw early and buy PMs, which essentially becomes a run on the bank.

knukles's picture

Shiria court in Indonesia sentenced a gay couple to caning.
One of the guys pleaded for leniency while the other said it would be OK if administered by a police man wearing patent leather jack boots, a Stetson hat and a pair of Freddy Mercury's Harlequin tights

 

 

Nice Try Lao Che's picture

My 401k?

 

lol ~ I'm only worried about my 420k

knukles's picture

 

     huh           ?

tmosley's picture

>If you live in a place such as New York or California, that’s a very big deal indeed.

Sorry, but why should people who live in states with no income tax subsidize the spending of states that do have an income tax? If a state wants to put in an income tax, let them feel the direct and unmitigated wrath of their electorate.

Nice Try Lao Che's picture

knuck (420)

 

I'm disappointed in you

 

https://en.wikipedia.org/wiki/420_(cannabis_culture)

BeansMcGreens's picture

I remember buying kilos of Mexican in a brick for $160 back in early 70s in the old college days. One had to slowly steam to make it pop loose correctly, kind of like jiffy-pop.

Nice Try Lao Che's picture

FFS ~ Hadn't you ever herad about seeds?

nufio's picture

this will never pass. if this enacted, people would stop contributing to 401ks and by extension, money flowing into (high overhead) management funds will cease, and might even force a stock market correction. 

the big banks and institutions managing these funds will make sure that any congressman that votes for this is never elected even for county office. 

we already know that big finance has the biggest lobbying influence, not corporations looking for a tax cut. besides companies that hoard profits offshore, how many comapnies with lobbying influence make a taxable profit anyway?

I think the confiscation is going to happen by forcing a % of 401ks to go into treasuries when they dont get a bid. Its probably going to start at something like 5 % and increase every 2 years. Theyll probably do this everytime the debt ceiling is hit. and the frogs will stay in the pot. they are not going to torch the frogs ass and make him jump out. they are not stupid.

Oracle of Kypseli's picture

Another diversion. Give up your 401k and bet against yourself. Insurances capitalize on human fear. 

The odds are that .gov will be in existense longer than the insurace co.

N2OJoe's picture

Glad I payed the penalty and took ownership of my retirement years ago.

THIS specific scheme may or may not pan out but make no mistake about it, they ARE coming for you retirement account.

OldTrooper's picture

"this will never pass"

Anyone want to bet their future on that?

Bobbyrib's picture

How many times do I have to remind you red state "fiscal conservatives" that most blue states get less than $1 back for every dollar they put into the Federal coffers, while most red states get more than $1 for every dollar they put in?

 

Now go ahead and blame the minorities for welfare.

 

It's not like blue states have more minorities than red states. Why would minorities not want to live in non-racist southern states who first dragged us into Civil War over the abolition of slavery then forced you guys to drop the Jim Crowe laws with the Civil Rights Act. /sarcasm.

If you guys love the right to own slaves so much and it is a state rights issue you should have converted from Christianity into Muslims and claimed we were infringing upon your religious rights which is forbidden by our Constitution.

401K of Dooom's picture

Ah ha ha ha ha ha ha ha ha, "Responders, please take the time to fact check me and provide a link to reputable data rather than knee jerk disagreeing."  Too bad your point is invalid already!

CA takes in more than it gives out.  The illegals already receive benefits due to the 1982 supreme court decision "Plyler vs. Doe"  You have more public universities except for New York.  those institutions receive Billions in research grants and student loans.  The people of CA are eligible for Medicare, Medicaid and OASDI payments.  You receive soo much from the Federal Highway Trust fund.  All of the military bases and units stationed in CA, that is from the DOD budget.  There is the funds from NEA and NEH.

Oh and Title 26, section 164(a) allows for the deduction of state and local taxes from your federal return.  That means the actual amount of taxable income that you send to the Federal Government is lower than what other people pay in their federal returns.  You have some of the highest property taxes and you are allowed to deduct those taxes from your returns and that is not fair!  I demand that you pay more in taxes in order to let your heart bleed!

One more thing.  Would  you share your sources that indicate how the Red States collect more in money from the Federal government?  Thought so.

Bobbyrib's picture

"CA takes in more than it gives out."

You are wrong.

https://files.taxfoundation.org/20170123145044/FedAidtoStates-011.png

"You have some of the highest property taxes and you are allowed to deduct those taxes from your returns and that is not fair!  I demand that you pay more in taxes in order to let your heart bleed!"

Moar subsidies please. I need to pay off my double wide with your hard earned tax dollars even though I am totally not a socialist. I hate socialist! I just love their money.

The trouble with red states is that sooner or later you run out blue states' money. Sound familiar? Seems much like the trouble with socialism..

El Oregonian's picture

Let them! I already took out my money!!! MUAHAHAHAHAHA!!!!!!!!!

booboo's picture

No shit, if you didn't see this coming you need a guide dog to find your ass.
Take the penalty and buy a popcorn popper

CJgipper's picture

"They want to end the tax-deductibility of your pension contributions so they can give a $1.5 billion tax break to U.S. corporations."

 

'So' is the wrong word.  They want to end tax deductibilty AND give tax breaks to corporations.  They have a printing press.  Debt and tax revenue has been rendered irrelevant.

 

Corporate taxes are way too high.  But let's get some money off the capital gains crew instead of ass raping the debt serfs some more.

nmewn's picture

Bit the bullet and took the hit on the IRA years ago, they won't be getting any of my that.

And I quit putting any of my EARNINGS into the 401k when my company decided that instead of one of my dollars of EARNINGS for a dollar of company EARNINGS their match would be...in company stawk. 

Which...of course is a dilution of current share holders (who they say is the most important thing besides their customers) and forces ME to trade in THEIR STAWK for fiat...plus pay a commission to a Wall Street broker in order to get fiat. 

So no. 

I wait for the shorts to maul it down (because you can't short inside a 401k) and buy towards the bottom and then sell it back to the broker who lends it to the shorts again...rinse...repeat.

Its not "my money" anymore per se ;-)

swmnguy's picture

Wow, they can do that?  Make you take their stock as their "matching contribution" to your 401k?

Fuck me, I hadn't considered that level of skeeviness.

I like your strategy.  What the hell, as you say, it's pretty much the House's money now, isn't it.

nmewn's picture

"Wow, they can do that?  Make you take their stock as their "matching contribution" to your 401k?"

Yes, they certainly can.

And the kicker (just so you know they are in league with the devil, so to speak...lol) is what I said before, they will bray, bow & scrape before anyone willing to listen, that "the shareholder" and the customer is their number one top concern!...as they counterfeit shares in the company to pay to themselves in compensation (instead of wages, which are taxed differently, 15% I think, lost track) as the effect of all those new shares dilutes the existing shareholder. 

The brokers pick those up as the exec's cash out into fiat for their pay...they (the brokers) then lend them to the short side. So anyone who is "long" these days is a fool.

So as I always say, so long as everyone knows "the rulez" no harm no foul. But of course, everyone needs to be privy to the rules for it to be fair ;-)

J Pancreas's picture

Care to share which company?

nmewn's picture

lol...of course not, I work for them and I value my anonymity more.

But there's a bunch of companies that do it...the dirty little secret is, outside of the top execs who have to hold a percentage long for propaganda purposes (because they get an outrageous amount of shares for simply breathing) most execs really don't care about anything other than the vesting date.

Thats their compensation (their "wages") thats when they dump them back into the ever increasing pool...exchanging them for fiat.

Here's the other thing, they can lament the stock price current fall all they want (after all, as it drops before vesting their last years "compensation" is falling too because it hasn't vested yet)...BUT...the existing shareholder will still be diluted even more this year as he/she CEO is expected to make X in fiat...PAID...in stawk...which is "created" for that compensation, diluting the existing. 

Arnold's picture

My 401 k Is very secure now.
Tanks you very muck.

Nice Try Lao Che's picture

It's springtime

 

SANCTUARY MULCH

The Real Tony's picture

What's theirs' is theirs' and what yours' is, is  also theirs'

MalteseFalcon's picture

"“It’s not really a question of whether retirement plans will get a haircut, but of how much,” said Bradford Campbell"

Really Brad?

And I suppose you were the genius from the Bush administration that wanted to privatize Social Security.

Anybody advising a politician to do this is not that politician's friend.

HRClinton's picture

End the Roth? 

I got Roth_shield and Deep_State_Shield, so it's all good.

Stay thirsty, my friends. 

Katos's picture

I THINK AMERICANS should have the same benefits that their ELECTED OFFICIALS have.  If we have enough to spend 10 trillion taxpayer dollars on PHONY ASS WARS, we certainly have enough money for ALL AMERICANS to have LIFETIME pensions and HEALTHCARE just like the 535 DOUCHBAGS in WASHINGTON 

Dig Deeper1's picture

If this has a chance of passing, I would be a fool not to withdraw early and buy PMs, which essentially becomes a run on the bank.

 

Better to take a loan on your balance if your plan allows - no penalties or benefit to unclesam.

InflammatoryResponse's picture

Just how stupid are these people?  we already have millions of poeple not saving enough.  so we enhance that?

 

 

barysenter's picture

Not stupid, gangsters dressed up as (((Marxists))). they confiscate everything, play dumb and apologize so their victims don't rise up kill them. It's not working, then these mongol mutts accuse us of being antisemitic while they genocide semites in Palestine. 

Mazzy's picture

It would be hard to make up if you were an author or a move script developer.  Reality is interesting, and the jews seem to have their grubby hands in every cookie jar.  Warmongering bastards.

Snout the First's picture

If the Palestinians really are undergoing "genocide", then maybe you could explain how there are more of them every year?

Wild tree's picture

Inflame, this is the end game. They are stealing what is left. There is no timeline for the future, which includes nuclear war IMHO.

Look over there, something shiny........

silverer's picture

Anything...ANYTHING but cutting spending. That's Congress. Representing you for your bankruptcy filing.

moonmac's picture

I throw my 401K and Profit Sharing statements right in the trash because the problem with paper wealth is it has a tendency to vanish rather quickly without much warning.

Arnold's picture

You supid fuck.
Skim, while there is still cream.

RathdrumGal's picture

Three of my hens are broody.  I will be "long" on chickens soon.

Grumbleduke's picture

this flashes George Carlin into my memory: "They're coming for your retirement money. And they will get it all, because they own this place. They own you!"

Sudden Debt's picture

HAHAHAHAHAHAHA

And guess what, there will be fines to pay for people who want to stop their pension savings.

This is all such a joke

divingengineer's picture

Yes, they will make it where there is no way out without getting gutted.
Welfare scrum will of course be exempt and beneficiaries of the policy.
They want a 3rd world shithole, for some reason.

Sudden Debt's picture

These people have nothing and don't have a 401K

they only get the handout and they'll live by the grace of the state untill they're no longer needed.

Hongcha's picture

What is this pension of which you speak?

knukles's picture

It's something only government employees get.  Along with post retirement healthcare benefits.
They done went and robbed the regular guy.

booboo's picture

Government employees will be farmed for their organs at gun point in the sewers by men with skinning knives too

Blankenstein's picture

This.  Only 15% of private sector workers receive a pension.  I guess .gov wants the private sector to have no savings either, so they have to work until they drop to keep the .gov gold-plated pensions intact.