One of the earliest fears about tax-favored savings accounts like IRAs and 401(k) plans was that when this pool of savings grew large enough Congress would not be able to resist tapping it to help solve the nation’s debt problems. We’re about to find out if those fears—persistent for decades—have been justified.
Everything including the sacred mortgage deduction is on the table as lawmakers wrestle with the fiscal cliff, a year-end avalanche of scheduled spending cuts and tax increases. With a combined $10 trillion sitting in IRAs and 401(k) plans, retirement accounts make a juicy target. Some of this money has never been taxed, and under current law never will be.
This assertion in and of itself is a fascinating departure from reality. Prior to 401k’s the preferred retirement savings plan was IRA’s . Nearly all of them once were tax free until one started to receive the cash for them. Now, most of them have additional tax implications which weren’t present when they were the most popular. Sure, many got grandfathered in, such as the one Romney has, but open a new IRA. The rules have changed significantly.
This next statement is the money statement…….
To maintain this savings incentive the government “spends” $100 billion a year in the form of tax breaks to those who stash money in these kinds of accounts. Now, a new study suggests this tax incentive does little to change saving behavior. Some lawmakers, no doubt, are wondering: Why keep an expensive tax incentive that does not incent?
There are people who actually believe that the money you earn is really the property of the government. They simply allow you to keep a portion of it.
As to taxing the 401k’s, that will happen. It may not happen now. It may not happen within the next couple of years, but, it will happen. What prevents it from happening is the fact that 401k’s artificially prop up the markets. Rules and laws have already been passed to prevent specific day to day trading with the 401k’s . This prevents volatility that the power brokers can’t control. This ensures blind money being thrown into the markets, regardless of performance, by the masses. The profit takers can figure it out from there. Once this system changes, the 401k’s will be taxed.
For those who may be outraged by this, don’t be. We weren’t all going to win, anyway. Be outraged that people think your earnings belong to the state, but don’t be outraged that this prevents us from all being and living like multi-millionaires. That was never a possibility. Money is relative. If we’re all millionaires, then a $million doesn’t mean much.