Politics: Gosh, that money in your 401(k) would sure help balance the budget
Published by: Dan Calabrese on Friday November 30th, 2012
By DAN CALABRESE - Since you're not using it right now anyway.
Apparently this is under active consideration. There's about $10 trillion sitting in tax-free 401(k) accounts right now, and while it's never been taxed before, some of our vaunted fiscal cliff negotiators figure there's no time like the present! Time reports:
So hold on to your wallet. Congress has many options when it comes to tapping this vast reservoir. It could eliminate the deduction altogether or just for top earners, further restrict the amount that is deductible (currently $17,500; for those over 50, $23,000), start taxing retirement savings growth, or take back the part that has grown tax-free.
In the throes of a retirement savings crisis, none of these options is appealing. But that last one is most troublesome. At stake is any savings that has accrued tax-free in a Roth IRA. Tax-deferred growth could be a target too if you find yourself in a lower tax bracket in retirement. There is no discernible momentum behind such measures. But a retroactive tax on this sheltered income has been a worry from the start. And now these accounts have a meaningful total—and everything is on the table.
Yeah. A retroactive tax on money you've been counting on as savings. Investors Business Daily expands on the thought:
A website set up by the ASPPA advises account holders to tell lawmakers to "keep their hands off your retirement savings" and explains that "Congress needs to reduce the deficit, and part of deficit reduction will most likely be 'tax reform' that increases tax revenue" — the strong suggestion being that Washington is coming after Americans' 401(k)s.
If the ASPPA were alone in issuing its warnings, it could be written off as the hyperbole of an isolated group. But Washington's lust for Americans' retirement investments is well documented.
President Obama's National Commission on Fiscal Responsibility and Reform, for instance, proposed lowering the cap on the amount workers could place in their 401(k)s without incurring taxes.
And nearly three years ago, Newt Gingrich and Peter Ferrara wrote on these pages about the Treasury and Labor departments "asking for public comment on 'the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams.'"
"In plain English," said Gingrich and Ferrara, "the idea is for the government to take your retirement savings in return for a promise to pay you some monthly benefit in your retirement years."
Bet you're excited about getting that monthly benefit some day, huh?
As outrageous as this is, did Americans really expect the federal government could run $1 trillion-plus deficits year after year and not come to the day where the situation would become so dire that we would find ourselves facing proposals like this?