Congress Threatens Americans’ 401(k)s

The GOP-led Congress has begun contemplating new legislation that could open up Americans’ retirement plans to taxation in whole new ways.

Under one proposal, 401(k) contributions would be taxed before they went into a taxpayer’s savings account.

A second proposal would tax 401(k) investment gains on an annual basis

The first proposal would raise an estimated $1.5 trillion in additional tax revenue over the next decade, while the second one would raise between $48 billion to $60 billion by 2025, according to USA Today.

According to The Wall Street Journal, the ideas were discussed by Gary Cohn, the director of the White House National Economic Council, during a meeting of the Senate Banking Committee earlier this month.

Currently, income that Americans funnel into their 401(k) plans plans can be deducted from their income taxes.

Moreover, investment gains in their 401(k) accounts can be accrued over time without their owners needing to worry about paying any taxes on those dividends, as long as they leave the accounts untouched.

If Congress actually passed the new taxes, these benefits would go away, and that’s a big problem.

For one, tax-deferred 401(k) accounts play a big role in fostering reliable retirement, according to David Kabiller, co-founder of AQR Capital Management.

He explained to The Wall Street Journal that if these accounts — as well as similar retirement boosters such as pensions, supplemental savings and Social Security — were to be eliminated or restricted, “you make achieving a secure retirement more challenging.”

Moreover, and this is important, adjustments to 401(k) tax laws wouldn’t impact members of Congress themselves, as they already benefit from taxpayer-funded pensions that average $41,316 a year and thus don’t even need 401(k) accounts.

They also benefit from cheap financial management services.

“Retirement savers in the private workforce pay outlandish management fees that can exceed 1 percent annually on lousy investment choices; members of Congress pay a maximum of 0.039 percent for funds that all but guarantee matching the market,” The Journal reported.

Bradford Campbell, a partner in the law firm of Drinker Biddle & Reath, noted that if Congress chooses to move forward with legislation targeting 401(k) tax deferrals, they should at least have the decency to offer complementary legislation targeting their cushy pensions.

“There should be equal sacrifice,” he said. “It’d be very hard for them to justify not doing that.”

No kidding, though the potential of the spoiled-rotten members of Congress investing in “equal sacrifice” seems razor-thin at this point.

The good news is that President Donald Trump still remains in charge — and assuming he meant what he said last year about protecting American workers, he won’t even consider signing such lousy proposals.

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