Why Congress Might Have to Mess with the 401(k)

"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."



Read more: http://business.time.com/2012/11/28/fis ... z2DiuqqAwo

Frankly I don't see this happening. Easier to just print more money, QE4 anyone?

If they actually went after these accounts, people would scream, and the people who have big money in these retirement plans are the movers and shakers.

The only way I see it working is if they traded your deposits for a guaranteed pension based on your savings.

Have 100K in your 401K? You would receive $500 a month after you retire. In essence selling Americans a note. I might actually consider doing that.

But something to consider, would people have to sell their stock before giving it to the Feds. Or would the Feds now own large percentages in corporations.
If they did the first, stock prices would drop quickly.
If they did the second, would they be able to influence the board?

If the feds go for my 401(k), I'll yank the $ and pay the penalty before they can get to it.

May not be a bad idea to do that anyway. I don't trust Wall Street to not find a way to jerk those away from us. We did that several years ago - paid the penalty and paid off the house. Since then we've been saving on our own. No, we don't get the return that you may get in the market, but we haven't lost anything either.

The sky is falling...

The ONLY way they would touch the mortgage deduction is if they start limiting it for 2nd, 3rd, 4th homes...(some with car elevators)...for people who make more than $1 million or so... Good... It's about time that the people who can afford multiple homes, and make more than $1million get a little less in mortgage deductions.

Money in 401k's, IRA's, if added in a pre-tax state is still subject to taxation when withdrawn...and always has been. And when you reach the age of 70 1/2 you must start taking Required Minimum Distributions, (which can be rolled right back into investments if you wish)..and the "required minimums" are pretty small, actually. And if you set it up as a Roth IRA, then the money got taxed before it got added, and you owe no additional tax on it.

Spare me your outrage-of-the-day hysterics. From your own article: "There is no discernible momentum behind such measures. "

But hey, since every day is a new day to be outraged...and fearful... What fun....

The scary thing about the fiscal cliff negotiations is that it is reminding me of ACA. I think Boehner and Reid will craft a huge batch of murky stew, get it passed when citizens and media are on Christmas vacation.

So while certain provisions are unlikely, I don't think Americans wll get to read the bill before it is passed.

Yup. More transparency from this most transparent government.

I could see as part of tax reform making the 401Ks, IRAs, Keogh's, pensions etc etc more fair and tax equivalent. At $5K max for IRAs, close to $20K for 401Ks, not sure about the others but they are all unequal just like the excessive tax favored treatment for Cadillac work place health plans/ FSAs compared to individual plans.

And the taxes are only deferred, most retirement funds are taxable when they come out, which is actually good for the aging population demographics. The IRS is going to need that money to pay back all the trust funds and more. I like the Roth's myself, pay now and freedom later. (hopefully)

I don't see them messing with this other than maybe making 401ks mandatory. That seems to be the new way from the Feds.

Now would be the perfect time to elminate the mortgage interest tax rate deduction. Grandfather the people who have current mortgages, give people a year to buy a home and keep the deduction and no more deductions in 2014 would pump up home buying. Plus 30 year interest rates are at historical lows.

LadyJazzer wrote: The ONLY way they would touch the mortgage deduction is if they start limiting it for 2nd, 3rd, 4th homes...(some with car elevators)...for people who make more than $1 million or so... Good... It's about time that the people who can afford multiple homes, and make more than $1million get a little less in mortgage deductions.

I don't think the 401(k) scare will result in anything, I thought I was responding to a hypothetical. All the power hungry in Washington know that messing with our private retirements would be political suicide.

As for the mortgage deduction, I was under the impression that you could only deduct the intrest paid on your primary residence, not any other homes owned for either private or business use.