A Bloomberg op-ed proposes the government will kill the 401K, and also that it should.
Your 401(k) Will Be Gone Within a Decade
Please consider Your 401(k) Will Be Gone Within a Decade
If you are among the 56% of US workers with a retirement plan, I have some bad news for you: Your 401(k) will be gone in 10 years, tops. Not the money, thank goodness, but the plans themselves.
There has been a brewing intellectual movement to get rid of the 401(k) for several years, with scholars on both the right and left questioning its value. And as the federal government gets increasingly desperate for new sources of revenue, the tax treatment of 401(k)s is a likely target. There are good policy reasons to end it, but the question remains: Will Americans still save for retirement?
All of this cost the government an estimated $185 billion in 2019, or 0.9% of GDP. That’s not nothing. And in theory it’s justifiable because it creates a powerful incentive to save for retirement. More retirement savings have a triple benefit: for the economy overall, since they fuel growth; for the government, since retirees with income are less likely to be a burden on the state; and, of course, for workers who might not save enough today and regret it later.
Then again, maybe not. The first rumblings that the benefits of the tax breaks may be overstated came in a 2014 study of Danish savers. Without tax-advantaged accounts, it found, people just put their money in another kind of account. People did save more in retirement accounts, but that’s mostly because of automatic paycheck deduction. Subsequent research in other countries found similar results. Not only did the tax incentive fail to encourage more saving; the biggest beneficiaries tended to be the wealthy.
To review: Neither conservatives nor liberals are particular fans of tax-advantaged retirement accounts, and savers appear to be indifferent to them. So what’s the point of a 401(k)?
What’s the Point?
The point is obvious. People are overly dependent on Social Security, food stamps, Medicaid and other government handouts.
The Bloomberg writer links to the New York Times article, Employers Can Now Enroll Workers in Some Emergency Savings Accounts
Starting this year, a federal law allows employers to enroll workers in emergency savings accounts that are linked to their retirement accounts. But some companies, put off by the law’s complex rules, have begun offering rainy day benefits outside workplace retirement plans.
But while the law, known as Secure 2.0, has helped draw attention to the need for rainy day savings, its rules for setting up emergency accounts within retirement plans are “clunky.”
For instance, only workers making under a certain income limit ($155,000 for 2024) may participate, and their emergency savings are limited to $2,500, though employers can set lower ceilings. And though employers can help with contributions, they must deposit any match into the worker’s retirement account — not the emergency savings account.
Should we really be basing decisions made in the US to those of Danish savers in 2014?
However you save, government ought to be encouraging more savings not less.
Nearly half of American Households Have No Retirement Savings
USAFacts reports Nearly half of American Households Have No Retirement Savings
In 2022, almost half of American households had no savings in retirement accounts, according to the Survey of Consumer Finances (SCF). These accounts include individual retirement accounts; Keogh accounts; certain employer-sponsored accounts, such as 401(k), 403(b), thrift savings accounts; and pensions.
Personal saving has grown more important as employers have shifted away from defined benefit plans, or pensions, putting more of the responsibility on workers to plan for retirement. In 1989, half of working households ages 50 to 60 had a defined benefit plan. In 2022, only a quarter did.
The lead image is from the previous link. The article has an interactive age slider to see what people stand.
Saving is Unfair to the Poor
President Biden, along with Senators Elizabeth Warren and Bernie Sanders, all believe government should take care of you, not that you should try to take care of yourself.
Rather than encourage more saving, the ultra-Left proposal is to call saving unfair to the poor and eliminate 401Ks for everyone.
At the Federal level, instead of putting Social Security receipts into trust funds that get spent, how about putting at least a portion of that money into individual accounts that government can’t touch?
I am a big fan of Roth IRAs. You are taxed upfront but withdrawals are tax free. Regardless, do something!
The best place to start is get out of credit card debt.
“Buy Now, Pay Later” Plans
If you are Addicted to “Buy Now, Pay Later” Plans please get off the treadmill.
Buy Now Pay Later, BNPL, plans are increasingly popular. It’s another sign of consumer credit stress.
Credit Card and Auto Delinquencies Soar, Especially Age Group 18 to 39
Credit card debt surged to a record high in the fourth quarter. Even more troubling is a steep climb in 90 day or longer delinquencies.
Age group 18-39 are most impacted by the Rise in Credit Card and Auto Delinquencies.
If you are in the delinquent group, you are spending too much money. Your savings is negative. Find a way to get out of the trap.
At age 60, the median person only has $10,000 in retirement accounts. Median total financial assets of those age 60 is only $53,000.
$50,000 is not enough to retire on yet and have much of a life. But age 60 is too old to do much of anything about it.
Taking away 401Ks would not help.
It is strange – the UK has a budget shortly. Our equivalent of a 401k is an ISA… Our government is talking about scrapping the…. Yet more group think? link to telegraph.co.uk
SS is not a handout for people that have paid into the “insurance” fund all their working life. Pisses me off equating it with food stamps etc.
401ks have always been a poor substitution for pensions. We need something more like a pension thats accessible to all. Maybe social security could be converted but the money must be isolated from general funds so it cant be stolen by politicians and it can generate money/interest by itself to help grow and sustain it.
Simply privatizing social security is not a good answer. If people can freely invest things like 401ks, they can easily lose all that money, and then where do they turn? The government, so itll be on the hook again after already losing out on the money that was lost for a double loss dip.
Pensions cannot work. All the companies with defined benefit plans are going bankrupt or already have. Public unions should go bankrupt but taxpayers are on the hook for ludicrous benefits.
I fully agree. Pensions went away in the private sector because they could not be financed. The closest approximation for financing are annuity (such as SPIAs) that provide a fixed stream of income. SPIAs are extremely costly for the benefit levels demanded by government workers (highly subsidized early retirement for long term workers). Government pension agencies play a very risky financing game by mixing assets to cover retirees and current workers. Government pension agencies have the power to extort taxpayers for much higher contributions when their bets fail. Government pensions are a house of cards ready to collapse. Democrats at the state and local level will demand a massive federal bailout when their house of cards collapses.
People, investing on their own, will do better than the investments the administrators of these plans pick.
I big step to solving this issue would be education at the highschool level. Basic Financial knowledge is extremely valuable over a lifetime.
?…if the median savings rate is so low, I wonder who all that includes? All the illegals? Remove them from the equation and the number should jump quite a bit.
Anything that has the fingerprints of the deranged moonbat from MA is gonna be terrible for you.
I have a couple of property investments, but very little in ANY account. When Biden took office, I began pulling out several thousand in cash every few weeks until depleted completely. So today, nothing is left in any bank or stock market or IRA or 401K…nothing left with the banks but a couple thousand more than monthly household expenses. Taxes all paid, cash stored in various safes, not on site. I don’t trust the $#&*$# government one iota! If they take it, they’ll have to find it first.
I’m doing something very similar… I’ve bought property & slowly shifted savings into other assets, like gold & silver. I now keep minimum/low cash balances @ bank accounts. I closed/liquidated the 401k years ago. I do maintain IRAs, but otherwise – on paper – I look pretty poor… but I’m not.
There’s a good blue print for this. Argentina nationalized private pensions 15 years ago. link to reuters.com
Essentially, they took all the money that had been saved, then promised to just print the money to take care of those who retired. Look how well it worked out there. What could go wrong?
Most of the value of IRAs, Roths, 401Ks, 403bs etc. are invested in the stock markets. If the government grabs these accounts and converts them to cash, so they can spend it, the stock market will crash like never before. This will make everyone dependant on the government. Just what they wanted.
The Framers put the 2nd Amendment in there for a reason and those that have continuously tried to erode it, many of whom comment here about confiscation, will be very thankful that the Providence of those Age of Englightenment thinkers placed language there and their 2A friends have been such resisters. They may remove the 401k/IRA program but confiscation that others mention has occurred elsewhere hasn’t progressed far here in the well-armed USoA. Poo poo it as pish posh but a armed society is a polite society.
Except in the left run states.
Did most people struggle when they were young? My parents thought that it built a feeling of accomplishment went you made it on your own, now the American past time is begging, my child’s house was 3 times nicer the the ghetto I had when I was my own, when the wind blew the curtains moved and that’s not a lie, bitch, piss, moan, someone will bail you out. don’t become dependent on someone or something.
Young people today seem to believe that our generation started out with everything that we now possess after 30 or 40 years of hard work and saving and investment. I think in many ways it’s making them feel like failures; because they don’t understand starting with little is normal. I remember newly married and living in an apartment with a bathroom in the exterior hall and shared with the next door apartment. We “moved up” into an 8’ x 22’ older mobile home. One week when a check was delayed, we had to eat biscuits and Kayro syrup for 2 or 3 days.
Our kids and grandkids need more awareness of how little we started out with so they can understand it’s OK…normal…to live lean when starting out. I also think it’s harder for them, because they grew up with so much, they have no concept of basics and can’t understand an $8 Starbucks coffee is no longer affordable. Most in my generation transitioned from lean households to more limited options, where kids today are going from abundance to very lean.
I agree with everything you have said, While I was talking to few elderly folk they other day they had the solution that we need a good depression to straighten people out.
“President Biden, along with Senators Elizabeth Warren and Bernie Sanders, all believe government should take care of you, not that you should try to take care of yourself.”
In the 1930’s Roosevelt confiscated privately held gold.
“Still, I prefer Roth IRAs. But Elizabeth Warren is after those too!”
I have wondered when it would come the time that Roth would be considered null and void. Privately held gold was confiscated and when push comes to shove, the government can confiscate all defined retirement funds in order to protect the government. Just think about what they did to us with the Covid response. Don’t put anything past them, if they think they can get away with it.
What do you expect with a consumer based economy?
Socialists (Dems) in this country will claim having IRAs and 401K is white supremacy and racist. They will either seize or tax them, then exclude the people who own these retirement accounts from social security and medicare payments. It’s coming.
Without a doubt. And the confiscations of the private funds will occur, in my opinion thusly:
It will be a part of the Feds new digital currency/ID rollout. They will “entice” the plebes into participating in the scheme by declaring they will “allow” individuals to transfer their funds from their 401k or Roth accounts on a dollar for dollar basis for no more than like 6 months after the implementation of the digital currency program. After that, one will only get 90% value for the next 6 months. Each 6 month increment after the first 6 months will reduce by an additional 10% until at the 50% value you’ll be given an additional 6 months to convert. After that, any account remaining private will be cancelled and the Fed will take your money. Sure, they’ll have some added enticements to get people to change but the tyranny/fascist State has already left the station.
Pay the taxes and take your money out. Invest in real property and gold, and stuff a mattress with cash. Take money out of their reach before they do.
Your objection to BNPL needs clarification: what’s a mortgage if not BNPL? There is productive as well as unproductive debt.
They will eventually. When you elect crooks to power over and over again, why be surprised when they leave you penniless?
Prob on of those laws they pass while were busy arguing over god guns abortion trans rights etc etc.
but seriously i thought they were encouraging retirement plans so they could ace social security.
My guess there gonna take one or the other from you. If you have been responsible and saved in a 401k they will prob take you ss
Social Security is not a handout. About one-eigth of gross earnings each paycheck is set aside in the program. It is a government mandated “savings” program, not a handout.
I think you meant to say, “additional handouts”, and not ” other handouts”.
@Mish,
PS I am not pro Social Security. I see myself as a realist. The reality on the ground is that about 1/3 of the population has a YOLO mentalty, across all income levels. This cohort thinks of money as though it were a banana — if you don’t consume it within a few days, it will spoil. The reality is that this third of the population would end up homeless in retirement without Social Security, here in independence minded America. Other countries/cultures are more closely tied to parents and are more likely to extend help in old age to this YOLO cohort. That’s not really how this country works, like it or not. I’ll take an orderly society over mass (10%?) homelessness, any day.
One way or another…yeah. SECURE ACT 1.0 in my opinion was a move in that direction…a fleecing of middle America, passed with bipartisan support! If Pa and Ma manage to raise their kids, avoid divorce, save a little nest egg…Pa passes, Ma passes, the kids have to liquidate the 401k’s in 10 years now (typically their peak earning years). Previously “smart kids” could take RMDs based on their own “death age”.
The oil business gets a really good review here!
link to blog.gorozen.com
We can apparently only learn from other countries when they are censoring speech or running health care systems. We must ignore the Australian superannuation retirement system that actually works.
Does it work? I’m in Australia and the scheme will work until it doesn’t. Australia’s economy is based on China, when it goes down then so will the Australian economy and the superannuation schemes.
Back in the 1920s Australia also had a social security scheme. Then the government in the 1930s brought in a government funded age pension for all. And they also confiscated all social security savings on the basis that people wouldn’t need them as now there was an age pension. Then about 40 years later they found the age pension was costing too much so they decided to means test it. So if you had worked hard, scrimped and saved then the government cancelled your pension. Those who had not worked hard, or spent their money on booze and junk and did not bother to save got a full pension.
So I have 70K in super but I’m not going to rely on it being there or worth much in 5 years. And the means tested age pension might be even meaner in the testing and meaner in the amount.
Got gold, silver, brass and land?
I spent most of my wages on whiskey and women.
The rest I wasted.
I’m holding off on taking anything from retirement plans
old enough for early ssi, but make to much – so they’d just take it back
Think about taking early retirement if you can afford to do so. Enjoy your golden years. The health problems will come soon enough.
Thanks for running this. The anti-savings argument is the old one from Keynes, that saving deprives the economy (including the government) of the benefits of immediate spending. Who needs capital if you’ve got full employment? Only Scrooges save!
So let me get this straight, according to the geniuses in Washington DC, me saving and investing my own money so that I’m not reliant on the taxpayers “costs” the government money? We’re screwed.
It’s not about costing the government money. That’s the official line for low IQ people and those who don’t think critically. It’s about control. Of you. If you are self-supporting because you have saved, then you don’t need the government. That is a problem for these sociopaths and psychopaths. Hence the lie about how encouraging you to save costs the government money.
There is at least $189B in cuts they could make just to DoD’s budget to offset whatever they are supposedly being shortchanged on. Most of the federal departments are unconstitutional. They could cut SS benefits and/or future liabilities. I for one would let them keep all the SS “contributions” they have ponzi-scammed from me if I could be let out of SS. And they could cancel federal debt if they wanted. Heck, they could tell China we will no.longer interfere between them and Taiwan in return for cancelling all federal debt held by China.
The majority of Americans who have foolishly lived their lives as grasshoppers and not ants will be used to build the argument to take control of everyone’s retirement accounts. If the control is not direct, it will be indirect by establishing requirements for minimal holdings of government debt.
I’m glad you caught my sarcasm
The average American is so obtuse that it is hard to tell if someone is ignorant and misinformed or not so and being sarcastic. And simple words in a comment thread without the benefit of tone, emphasis, body language, etc , can make it difficult to suss out sarcasm. So use your sarc tags next time, big boy. They’re like a turn signal on a car…a courtesy to let other people know what you’re doing.
e.g.,
/s or
Mish wrote “However you save, government ought to be encouraging more savings not less.”
There is a difference between ‘ought’ and government’s natural inclinations. Government wants to spend right now on its redistribution and vote-buying schemes. Government acts like tomorrow and our expected costs of tomorrow will take care of themselves.
lol ! In the meantime the US of A is paying Whorekrainian pensioners !
If we don’t send them money right now there may not be enough of them to save next month.
Duh.
/s
Cui Bono?
Companies that match employee contributions. For the best run companies, it improves profits. For marginal companies, this money delays bankruptcy.
“The point is obvious. People are overly dependent on Social Security, food stamps, Medicaid and other government handouts.”
This happens after 40+ years of “job creating tax cuts that pay for themselves” create jobs in China, Mexico, India…..
Saint LBJ, who covered his blood trail with Vietnam, created those programs. His spending on social programs and Vietnam forced Nixon to divorce gold. The 70’s inflation lasted 17 years until the oil glut fixed it. Time sq was a whore house. CA defense industry collapsed. The steel industry melted. Carter used China to fight inflation.
LBJ created Reaganomics?
I thought I was the only one who remembered the 70’s. It may be back.
More like after 60 years of poverty politics that has spent insane amounts of money to solve those problems without doing a thing to move the needle. We’ve been following the progressive policy of anti-poverty money dumps for over half a century, and the problems have either stayed the same or gotten worse, and yet the failure of your policies is somehow someone else’s fault.
Instead of eliminating saving programs, or creating more of the same, how about reintroducing money management education classes into High School.
IMO one of the biggest pluses would be teaching money management to kids when that are starting to work and earn income.
Also, it may be worth comparing the life long saving rates among kids, by decade, who had these classes vs. those that never had it and relied on their parents teaching it or left to learn on their own. we all know what the outcome will be, however a picture, or graph, is worth a thousand words…
link to king5.com
The democrats actually floated a trial balloon for eliminating 529s (college savings that grow tax free) about a decade ago. The backlash was UUUGE, and that is a fraction of people who hold 401Ks, so a 401K major change would wake the population that is ignoring everything else, especially coddled white-collared leftists on both coasts who massively use 401Ks and vote dem. So I don’t see anything major happening.
However, the gov can and is chipping away at the margins of the 401K. Starting in 2026 the “catch up” part (after 50 when you can add more) is fully taxed and put into a Roth. So that portion will grow tax free, but you lose the deduction, which in high tax states is actually a pretty big tax hit: Assume an $8K catch-up and combined 35% tax rate, and you are paying out almost $3K more in taxes a year instead of investing that money on yourself. This 2026 change is a two year push-out that was supposed to start this year – the IRS said it was to allow businesses and investing companies to put in the changes, but part of it was push back from tax payers who are close to retirement and vote.
I can see Republicans attacking 401k plans, just like they did with SALT deductions, all to protect their uber rich donors who got their taxes cut. 401k together with healthcare, education and all other services. But still, work on tripling the defense budget.
More Democrats in congress are rich than Republicans. The old paradigm of the Republicans being the party of the rich has inverted, thanks to the rise of the rich technology companies. Google and it’s rich employees give overwhelmingly to Democrats, for example.
“just like they did with SALT deductions, all to protect their uber rich donors who got their taxes cut.”
The SALT deduction limitations were a HIT to the rich. So much so that four high-tax states sued and lost.
The biggest percentage changes in tax rates occurred in the lower and middle class tax rate groups. All this expires after 2025. The standard deduction will be cut nearly in half and the rates will go back to pre-TCJA levels, unless it is extended. If it isn’t, I fully expect the folks who labeled it a rich man’s tax cut will reverse course and call it “one of the largest tax increases on the poor and middle class in history” when it goes back to the pre-cut levels.
It’s just another “Tax the rich (but the rich are already taxed)” scheme so it won’t work. Anybody who’s done the math on 401k’s knows the government still taxes the money, only on withdrawal rather than deposit. So the only possible additional taxes for the government is going to be if there is a difference in the tax rate at withdrawal as compared to investment, i.e. the income drawn from the retirement account was less than the income at time of deposit. (Inflation adjustments need to be made for an accurate comparison.)
But if they take away the tax deferral (which is all it is), what happens to the stock market when that captive monthly or annual amount stops? I figure a good portion of why the stock market is so divorced from earnings is that every month millions of people put into their 401k’s via work deduction plans and the managers have to put the money somewhere. So into stocks and mutual funds it goes, and some into bonds, depending on how old the individual is. Killing the 401k could remove the buy-side bias. Then what happens? Trillions in notional wealth could disappear. And with it capital gains taxes for a generation.
So they better be careful with this one. Tax deferral is a strong motivator to save. Without it, people might decide on boats and vacation homes. And with inflation already running high, about the last thing they want to do is divert savings to spending. Inflation breeds inflation, as people figure if prices are rising at 6% per year, it is better to buy now rather than later.
“Anybody who’s done the math on 401k’s knows the government still taxes the money, only on withdrawal rather than deposit.”
That’s the issue. The Fed’s need the money now, not in forty years. (I know, they will need it then too, but they don’t think that far ahead.)
My old complaint was that the 401k contribution limits were so much higher than the IRA limits. I worked for several years at companies with no 401k, and wasn’t allowed to put very much in the IRA either. This year it’s $7000 for the IRA, but $23,000 for the 401k. Why the difference when they are for the same purpose?
But if the Feds need the money now, why have they raised the age of Required Minimum Distributions (RMD)?
If people cut food away from home and switch to real food, to healthier food, and move their mass, their medical bills will drop.
They like stirring the pot. To Save Money, Maybe You Should Skip Breakfast WSJ I would not be surprised
What the government will do, as is its nature, will be to move ALL 401K/Roth money into the social security “trust” funds. A)they will say they arent confiscating them (ie 4th Ammdmt Issues), as they are creatures of the government and are just placing them in the national fund…still allegedly FOR you (so its not confiscated), but that’s only as useful as the fund currently is (Its not) B)Those that paid taxes upfront on a Roth….too bad for you, sucker. C) This will equalize the funds for the poor.
The NEXT step will be to means test them, to further screw the top/middle classes. They took your money, then you get nothing.
Mark my words. Its how all failing governments do it….
I will quibble over your “NEXT step”. There already is a bit of a means test to Social Security benefits. Someone who earned median (or less) wages and paid FICA taxes long enough to earn benefits gets a larger benefit, than proportional, than a person who earned at the wage cap.
I take note of progressive sentiment to do away with the wage cap and FICA tax all earned income, and they will want to also tax unearned income, interest rent and dividends. And they will no doubt make the before mentioned progressiveness in SS benefits more so. And they will borrow from Bill Clinton and progressively increase the amount of SS benefits that you must include in your income when calculating income tax.
Speaking of failing governments and Social Security, I read > 20 years ago that old-enough Russian pensioners continue to draw USSR social security checks. The amount is about (exchange value) $20 or $30/month.
I lost a decent chunk in a 401K recently. Apparently some of it was loosely tied to Russian assets. I got a letter stating it was seized.
Right after that I killed it and started investing in real estate. Much better investment by default. I do most of the work myself to refurbish the properties on the side. One of the best decisions I ever made. No more seizure letters! I own the properties and they will absolutely outperform any crappy 401K long term.
The only issue is all the neighbors wanting to hire me to fix stuff. I have to keep telling them I’m not that guy.
Declining Markets and Inflation will take away your 401K and IRA.
An unintended consequence of eliminating 401ks would be a crash of the stock market. The 401k allows money to grow tax free until distribution and there are very few investment choices allowed in 401k, mostly mutual funds, ETFs, stocks, and bonds. Stocks would lose people automatically buying every paycheck and the employer match to boot. From me alone would be $30k I put into 401k each year. Over 10 years, that’s $300k of money gone. Multiply that by 10 or 20 million.
So if there were no 401k then my money would go into real estate rental properties or other investments otherwise I would need to deal with dividend taxes, interest taxes, and capital gains tax on stocks. God help you if you are in a state with a state income tax.
I doubt anyone has thought about all these things. With real estate, I can write off the expenses and offset income until I’m ready to sell.
The gov can legally short sell your 2 million for a hollowed IOU, but they don’t have to bc u parked “your” money in the roach motel for 5%/y.
Yes, the roach motel has been paying well. Soon it will be $3 million…lol.
U wanted to buy RE two years ago. When I said don’t the herd gang on me and told me to shut up and learn from u.
Good memory, I STILL want to buy but the cap rates don’t make sense, we are living in bizarro world. It’s better to make 5% in roach motel T-bills than deal with renters, property taxes, insurance, etc. I need 10 to 12% cap rate to make it worth my time.
Time=$$$.
The cap rate is 2%/3%. Long way to go.
I’m not sure that’s what would happen. As Mish stated, most savers in 401Ks simply save because it’s automatically taken out of their checks in the same manner taxes are. So as long as money was taken out each check it might not matter at all whether it went into a 401K or simply a standard taxable savings/investment account that you could use to invest in stocks/bonds/real estate.
The only difference is that your 30K would instead be say 25K after taxes since it’s not tax deferred. You’d still get 25K to invest but the government would get 5K tax now instead of later when you do withdrawals. That 5K would of course just be spent in a different manner (you on stocks, the government on something else) but it would still get back into the economy and eventually into *Someones* pocket which ultimately ends up in a savings account or the stock market (with you or someone else as the stock owner).
Oh Tim I can tell you don’t deal with millions of dollars in investing so let me walk you through this with an example.
Let’s say I have TWO accounts, a tax deferred IRA/401k and a taxable brokerage account.
I have $100,000 in each account.
It is October 2022 and I buy 1000 shares of NVIDIA @ $100.
Now it’s Feb 2024 and NVIDIA shares are $780.
In my taxable account I have $680,000 in profits.
In my tax deferred 401k/IRA account I have $680,000 in profits.
I am thrilled but I want to unload NVIDIA and just sit in cash cuz I think NVIDIA is going to crash.
What is my tax liability?
In my taxable account, I have a 20% capital gains hit of $136,000.
In my tax deferred account, my tax liability is ZERO. I keep the full $680,000. I can then buy 5% T-bills and earn $34,000/year in interest that is tax free or buy other stocks and let them grow. I only have to worry about taxes if and when I withdraw the money or reach RMD age per current 401k rules.
There is a huge difference in behavior. People that don’t have access to 401k will optimize their investments to reduce taxation, at least the people with lots of money.
In taxable accounts, the taxes on earned interest (bonds/CD) are that of ordinary income so if you’re in the 32% tax bracket you’re paying 32% on that interest. Qualified dividends tax is 20% as is short term capital gains. Long term capital gains have their own tax table from 0% to 20% based on different income brackets.
With 401k’s gone, investing in real estate would explode, you can write off mortgage, maintenance, insurance, etc and offset the income it generates and take depreciation. It ends up being a nice tax shelter unless the laws are changed when 401ks go away.
I hope you enjoyed my Ted talk.
I fully understand taxable and tax free accounts (I have both).
Your Ted talk only talks about yourself and not what happens in the wider economy. For example, if you elect not to put your 30K a year (or 680K) into stocks but instead real estate you believe that takes that money out of stocks. But does it really? Because the math says you pay someone else 30 (or 680K) for that home. What do they now do with that money? Well they put it right back into stocks so now they own stocks instead of you.
Understand not everyone can be in real estate. It’s a finite asset. So when you buy a house, someone else must sell and they must do something with that money (buy another home, buy stocks, spend it on goods/services) and eventually someone some where ends up with that money and has to park it back into stocks because there is no place else for it to go.
That concludes my Ted talk on how the math must balance on every sale of stock/homes etc.
I think it’s more likely to be replaced with a new safer system that invests in US debt. They can also phase in a provision to have all existing 401K accounts move towards a safer and balanced investment view. Moving up to 50% of the balance invested in safe US debt. It will be to protect the people. It’s for your own good!
For the safety of US debt you would be exchanging one class of risks for a different class of risks. MPO45v2 has a good idea, but forgets that the government can change those rules, too.
And that the US has massive debt and unfunded liabilities
US debt is “safer”? Because the Federal government is so trustworthy in how they spend? Take a look at the unfunded liabilities data for the Federal government and then explain how safe they are in the future.
I think you are mistaken that they won’t come for the money as well. they see those assets as a huge honeypot and will want to get their hands on it to “more equitably distribute” those funds.
“President Biden, along with Senators Elizabeth Warren and Bernie Sanders, all believe government should take care of you, not that you should try to take care of yourself.”
Ah yes, tolerate onerous taxation and the unceasing loss of the currency’s purchasing power because of the promise of a comfortable and worry-free retirement.
Of course what really happens is that the citizens work to support and sustain the governments, but that doesn’t sell as well during election season.
The solution is to get rid of government. President Trump signed Schedule F, which stripped job protections from career officials in policy roles throughout the bureaucracy and made it significantly easier for a president to fire civil servants. Candidate Ramaswamy notes that mass impersonal layoffs of civil service employees are legal. Flip a coin and Lay off every civil servant who has either an even or odd social security number. Government would not miss a beat and efficiency would improve.
I don’t disagree, but after you get rid of government then what? Will people miraculously start to save, or will many continue to piss money away on $8 Starbucks, $1,000+ iphones, and the like? I’ll take the latter if we were betting.
Besides, you could get rid of every last worker at the Federal level and still not come close to balancing the budget at current tax reciept rates. In my view, Americans are addicted to buying shit they can’t afford and don’t need.
People can easily cut flexible items and sticky items : food away from home, recreation. household furnishings and communication. If they do consumption will be down and savings will be up. In deflation the dollar is the king. If vacancies will rise the can cut on rent.
10 million illegal aliens in the last 3 years. We are all saving our 410k for them.
Certainly 401ks can be taxed at a 90% rate for the good of the country.
I give up. Bankruptcy all the way around.
This is not a new concept. I remember after Obama got elected, Teresa Ghilarducci (labor economist) proposed not only getting rid of the 401k but also confiscating all existing 401k balances to fund some new government retirement scheme that supplemented SSI. It caused a huge backlash at the time, and quickly died as it should have. I guess the idea is gaining traction again…….SMH.
Sounds like Clinton in the ’90s. He used the “contribution” word straight from “Animal Farm”.
The DC kleptocrates will steal your retirement savings and more, but, not in a direct manner. They will steal it through inflation and blame it on everything and everyone except themselves. Mean while, they’ll squander $Trillions on war.
Epic rant by Scott Ritter
link to youtu.be
Using the same logic why not get rid of union pension plans.
Private sector union pension plans are slowly self-deleting because they are massively underfunded. My union has one funded at about 75% of what it should be. It’s considered to be ‘distressed’. In December 2021 they ended death and dismemberment benefits, stopped enrolling new hires in the plan at all, and slashed the rate at which benefits are accumulated in half. They used to ‘guarantee’, in air quotes, a rate of 2% of your final salary per year that you worked full time. Now it’s 1% per year for those hired before the cuts, and 0% at all for those hired after them.
Remember when Japanese savers had Japanese Post Office accounts? It was a big deal when that money was made available to capital markets. Let’s take two steps backward where the Feds say, “all of your savings are belong to us!”
People with savings or real state are a main target for goverment. Politicians prefer people who spend in booze and night clubs, like Hunter Biden, I suppose.
Economists are all day blaming chinese or german citizens for saving too much. Very sad and risky message.