Source: BanyanHill.com, by Ted Bauman
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.
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.”
Read More Here: Congress Is Coming After Your 401(k) – Banyan Hill Publishing