Well, You Knew This Was Coming…… 401K On The Tax Block

 

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From Time Business and Money….

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. 

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8 Responses to Well, You Knew This Was Coming…… 401K On The Tax Block

  1. Bruce says:

    First they came for the pension funds. Then they went for the central-bank reserves. Americans have wondered for years which kitty Barack Obama and his government would grab next to sate their appetite for cash. On April 16th, 2015, they got an answer, when he announced he would send a bill to Congress to nationalise 51% of Koch Industries, the private oil firm.

    Oops, sorry I mistranslated from the Spanish. The article is actually about Cristina Fernández of Argentina.(/satire)

    Here in Oz my favourite past PM, Paul Keating, had a saying:

    Never stand between a State Premier and a bucket of money.

    This principle would also work quite well for Democrats of all shapes and sizes.

  2. Scott says:

    While I personally don’t care for the 401k system (or more exactly, it’s overuse/abuse), it sounds like people will be up a creek if they decide to start taxing it. The reason? The announcement of a future tax would likely cause people to pull the money and place it somewhere else or at least spend it. But because of current laws with the funds, it’ll be heavily taxed penalized if they pull it early.

    So pull it early–taxed/penalized. Leave it–taxed with a new system. Lose-lose.

    But weren’t these kinds of systems initially pursued to reduce the reliance on social security?

    Looks like I did the right thing to just get the cash from mine whenever I changed institutions and use it to pay off mortgage and student loans. Took a big hit, but at least it was going against a set interest rate that has outperformed the market average over the last 5 years…

    Oh well, unless the system is remade to reward wise decisions instead of saving idiotic decisions, then idiotic decisions will continue to be made by many people, even the majority. And that sort of business model can never be sustained.

    -Scott

    • suyts says:

      “But weren’t these kinds of systems initially pursued to reduce the reliance on social security?”

      Yes, but, the promise of social security never abated. Now the retirement plans are made to be in conjunction with social security.

      You were right to pay off debt where the interest rate would be more than the returns on investments. Currently, I recommend the purchase of property and durable goods with intrinsic value, metals such as copper are good right now. This is what I’m pursuing at the moment.

  3. leftinbrooklyn says:

    ‘Taxation without representation!’. The rally cry of the American Revolution.
    ‘Taxation from over-representation!’. The rally cry of the second.

    Not only did you not build that business. Turns out, you didn’t build anything. Not even your 401k.

  4. philjourdan says:

    Liberal fail. They always claim the lack of revenue is an expense.

  5. kim2ooo says:

    This ensures blind money being thrown into the markets

    ?? please.

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