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Its like a Ponzi scheme. Tax cuts on one side, cap 401K/pretax IRA contributions on other side! I am not being political here or targeting anyone, just saying the facts!
Personally, I thought the shift away from employer funded defined benefit pensions was bad & benefitted no one but big business. Rather than throw it out, reforms might have been enacted re longer life spans and multiple employers over a lifetime. But the 401K was trumpeted back than as a better solution to retirement - and the fish (you name the species) took the bait.
Now that most defined benefit programs are long gone, the other end of the shaft appears ready to engage.
Couldn't have said it better, @hank. I retired early, so my own defined-benefit pension will take some time to catch-up to where it ought to be, so to speak, if I had left work at 65 or so. I also have been told that there are defined-benefit pensions which remain frozen--- in effect getting smaller and smaller after inflation, as time goes by. I'm pretty lucky on this particular score. 401ks never should have been touted as a PRIMARY retirement vehicle. What a load of crap. And back when the change was underway, I could smell it coming all the way from the next time-zone. Big Money, always looking for new ways to get even bigger. The working stiff must always help the rich. Pity the "poor" rich folks. Ugh.
Not a bad time to understand another retirement maneuver employed mainly by the wealthy, but might be even more strategic for lower wage earners if the 401K gets capped.
It sums it up alrigt! Somehow getting your tax dollars now for the 401(k) to counter for the massive tax cut for business. Where is the fiscal responsibility that GOP was crying about? All 51 out of 52 voted for it in the senate.
Just a guess, but I have a feeling that if this causes Roth-type accounts to skyrocket in value, Congress will find a way to get their claws into that pie as well.
You're not going to tax the principal going out. It's already been taxed. In this sense, a Roth is no different from a nondeductible IRA.
You might try to tax the earnings, but pragmatically this is virtually impossible, at least retroactively (on existing Roth money). That's because people don't have complete records of contributions vs. earnings, especially with intervening withdrawals, as they do for nondeductible IRAs.
The trend has been in the opposite direction. It was only three years ago that the IRS started permitting people to roll over their after-tax (not Roth) contributions to 401k's directly into Roth IRAs. In essence, this mimicked backdoor Roth IRA contributions, except that you didn't have to convert pro-rata. You could dump your entire after-tax investment into a Roth without having to pay taxes on the pre-tax portion.
There are other targets for Congress to go after. Congress could close these backdoor loopholes. IRA deductions are capped by income (if you're covered by a retirement plan). A backdoor conversion circumvents this cap. Similarly, deductible/Roth contributions to 401k's are capped. This newer backdoor conversion of after-tax (nondeductible) 401k contributions is a way of circumventing that cap.
Life insurance policies currently also get special tax treatment. You pay with after tax money, and like a Roth IRA, the earnings (death benefits) are tax-free. The policies could instead be treated like non-deductible IRAs, where they're funded with after tax money and the taxes on growth is deferred but not exempt (just as annuities are treated now). They are often used by well heeled investors who use the policies for estate planning purposes and tax shelters.
So doing away with some of the insurance tax breaks might constitute a win-win: a less distorted financial product marketplace and more equitable tax treatment across income levels. This would also serve Congress' need to raise more revenue. It'll never happen either.
WSJ: Trump Says ‘No Change’ to 401(k) Plans Under Forthcoming Tax Proposal WaPo: Trump wants a tax plan in a hurry (emphasis added; "wants", not "has") LA Times: Trump vows 'no change' to 401(k) rules in Republican tax bill, writing about "the Republican tax overhaul bill being drafted by Congress "
Tax cuts and 401k cap discussion (and all else, from warming to healthcare) are invariably political and sure have personal-finance consequences. You can always skip.
@msf: You said: You might try to tax the earnings, but pragmatically this is virtually impossible, at least retroactively (on existing Roth money). That's because people don't have complete records of contributions vs. earnings, especially with intervening withdrawals, as they do for nondeductible IRAs.
I assumed the brokerage forwarded this info to the IRS ? 401 k money that was rolled into IRA gets reported. At least mine does. Derf
Trump apparently just announced that he was ruling out the 401K cap without consulting Congress. I'm glad he ruled it out, but if this lack of coordination continues, I think we can pretty much rule out any tax reform getting passed.
There may not be any reporting of Roth 401k contributions, e.g. individual 401k's under $250K are not required to file any Form 5500 variant. And the Roth contribution doesn't show up on your 1040 (only deductible contributions do).
So when you move money from a Roth 401k to a Roth IRA the IRS is notified of the total amount, the IRS doesn't know how much of that is principal and how much is earnings.
Of course if we're talking about Roth IRAs, the custodian does have reporting requirements, so the IRS will know how much you contributed to your Roth. But you the taxpayer probably don't know the cumulative amount over years. It's not like a nondeductible IRA, where you're required to file an 8606 form every year to keep a running tally.
So the IRS may not know how much principal you have in a Roth, and even if it does, you may not. That makes it at best very difficult and sometimes impossible to report how much of a Roth distribution represents earnings not previously taxed, vs. principal on which you've already paid taxes.
@PRESSmUP, that's funny. Being a Bills fan, I have a soft spot for the Browns. Even in the worst of Bills coaching and management debacles, I can look across Lake Erie and realize it could be worst. Actually the Browns were my dad's favorite team when I was a kid, so in the early 60's they were my favorite too.
The Browns isn’t actually that terrible of a team name. It’s not good either, but there exist much worse names. The reason the Cleveland Browns land on this list is the origin story of the name. The franchise was created in 1945 and the owner, Arthur McBride, wanted to name the team after the head coach, Paul Brown. Paul had the decency to refuse the calls to have the team named after him and instead held a poll to decide on a new name. After the poll, the name Panthers was chosen and enacted until a copyright claim was filed two months later. Apparently, Cleveland already had a failed football team named the Cleveland Panthers (who would have guessed there were multiple feline-named teams?). So, the team name reverted back to the Browns, supposedly not after Paul, but after Joe Louis’s nickname. I don’t buy it, the team was definitely named after the original head coach, and in that, they missed a great opportunity. They would have easily had the best team name in sports if it would be officially changed every time a new head coach took over. Who wouldn’t love to be watching the Cleveland Pettines on Sunday?
Hartford recently named their minor league baseball team the Hartford Yard Goats. Well their first year was spent completely on the road as the city and contractor mismanaged the stadium construction (yet another civic reason to downgrade their bond rating). Road Goats would have been more appropriate.
No disrespect to the fans or the players, but winning at sports is hard enough without the added burden of a bad name.
Another poorly named sport team: (Minor League Baseball)UC Santa Cruz Banana Slugs
Getting back on topic... why 401K? I guess Lifesavers was taken.
Comments
https://www.mutualfundobserver.com/discuss/discussion/35094/will-the-gop-destroy-the-401k
Personally, I thought the shift away from employer funded defined benefit pensions was bad & benefitted no one but big business. Rather than throw it out, reforms might have been enacted re longer life spans and multiple employers over a lifetime. But the 401K was trumpeted back than as a better solution to retirement - and the fish (you name the species) took the bait.
Now that most defined benefit programs are long gone, the other end of the shaft appears ready to engage.
Funding a backdoor Roth and Avoiding Six Common Mistakes
news.morningstar.com/articlenet/article.aspx?id=687449
You might try to tax the earnings, but pragmatically this is virtually impossible, at least retroactively (on existing Roth money). That's because people don't have complete records of contributions vs. earnings, especially with intervening withdrawals, as they do for nondeductible IRAs.
The trend has been in the opposite direction. It was only three years ago that the IRS started permitting people to roll over their after-tax (not Roth) contributions to 401k's directly into Roth IRAs. In essence, this mimicked backdoor Roth IRA contributions, except that you didn't have to convert pro-rata. You could dump your entire after-tax investment into a Roth without having to pay taxes on the pre-tax portion.
There are other targets for Congress to go after. Congress could close these backdoor loopholes. IRA deductions are capped by income (if you're covered by a retirement plan). A backdoor conversion circumvents this cap. Similarly, deductible/Roth contributions to 401k's are capped. This newer backdoor conversion of after-tax (nondeductible) 401k contributions is a way of circumventing that cap.
Life insurance policies currently also get special tax treatment. You pay with after tax money, and like a Roth IRA, the earnings (death benefits) are tax-free. The policies could instead be treated like non-deductible IRAs, where they're funded with after tax money and the taxes on growth is deferred but not exempt (just as annuities are treated now). They are often used by well heeled investors who use the policies for estate planning purposes and tax shelters.
Here's an old NYTimes article on how the insurance industry's favored tax status enables insurers to sell high-priced products.
http://www.nytimes.com/2013/05/11/your-money/getting-the-full-picture-on-annuities-and-insurance.html
So doing away with some of the insurance tax breaks might constitute a win-win: a less distorted financial product marketplace and more equitable tax treatment across income levels. This would also serve Congress' need to raise more revenue. It'll never happen either.
Oh, you mean the nine page "Unified Framework for Fixing our Broken Tax Code" released Sept. 27th?
Some news sources got it right:
WSJ: Trump Says ‘No Change’ to 401(k) Plans Under Forthcoming Tax Proposal
WaPo: Trump wants a tax plan in a hurry (emphasis added; "wants", not "has")
LA Times: Trump vows 'no change' to 401(k) rules in Republican tax bill, writing about "the Republican tax overhaul bill being drafted by Congress "
Regards,
Ted
Regards,
Ted
I assumed the brokerage forwarded this info to the IRS ? 401 k money that was rolled into IRA gets reported. At least mine does.
Derf
And that has investment implications, IMHO.
So when you move money from a Roth 401k to a Roth IRA the IRS is notified of the total amount, the IRS doesn't know how much of that is principal and how much is earnings.
Of course if we're talking about Roth IRAs, the custodian does have reporting requirements, so the IRS will know how much you contributed to your Roth. But you the taxpayer probably don't know the cumulative amount over years. It's not like a nondeductible IRA, where you're required to file an 8606 form every year to keep a running tally.
So the IRS may not know how much principal you have in a Roth, and even if it does, you may not. That makes it at best very difficult and sometimes impossible to report how much of a Roth distribution represents earnings not previously taxed, vs. principal on which you've already paid taxes.
No disrespect to the fans or the players, but winning at sports is hard enough without the added burden of a bad name.
Another poorly named sport team:
(Minor League Baseball)UC Santa Cruz Banana Slugs
Getting back on topic... why 401K? I guess Lifesavers was taken.
Regards,
Ted
https://www.google.com/search?q=mud+hen+cap+picture&oq=mud+hen+cap+picture&gs_l=psy-ab.3..33i22i29i30k1.16271.25109.0.25502.16.16.0.0.0.0.101.1189.15j1.16.0....0...1.1.64.psy-ab..0.16.1185...0i22i30k1j33i160k1j33i21k1j33i13i21k1.0.RO_PbarIq_4
16 Other Favorites Team Names:
https://www.si.com/extra-mustard/2016/02/26/crazy-weird-minor-league-team-names#