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No cuts to 401(k)s or IRAs

By Jennie L. Phipps · Bankrate.com
Wednesday, November 28, 2012
Posted: 2 pm ET

Are 401(k) and IRA plans likely to fall or be pushed off the 'fiscal cliff'? The American Society of Pension Professionals & Actuaries, or ASPPA, thinks that's a risk we ought to be worrying about.

As Congress looks for ways to manage the out-of-control budget, one of the most talked-about tools is tax reform -- lowering the rate and broadening the base, so more people pay taxes but at lower rates. To achieve that, something has to go. ASPPA is spreading the alarm that one of the biggest targets -- and maybe the easiest -- is tax-advantaged retirement savings plans, which cost the government as much as $100 billion a year in tax breaks.

"If you talk to individuals on the Hill about the likeliest targets -- retirement savings, mortgage interest and charitable contributions -- it is hard to find somebody who will say 'Yes, let's get rid of them.' But anybody who is talking about lowering rates and broadening the base, is going to have to go after all those things," says Judy Miller, director of retirement policy for ASPPA.

In the case of retirement savings plans, Congress could go in various directions -- none of them good for your retirement planning. It could:

  • Do away with the deduction for retirement savings.
  • Eliminate the deduction for high earners.
  • Further cap the deductible amount (currently $17,500, or $23,000 for those 50 and older).
  • Tax future retirement savings earnings.
  • Levy taxes on past tax-free and tax-deferred retirement savings income.

Though some argue that most of the tax benefits of retirement plans flow to the wealthy, Miller says this will hurt people who earn less than $100,000 the most. "The tax deduction is very important to people with more modest incomes. For someone in the 10 percent bracket, that 10 cents on the dollar is very important to their cash flow."

One of the arguments for choosing this route to raising taxes stems from a recent study of the retirement system in Denmark, which is similar to ours. That study indicated that eliminating tax incentives wouldn't make much difference to most savers. But Miller says that's beside the point. The eliminations of deductions would hit small business hard. "To think that businesses are going to be able to set up a retirement savings system without a tax incentive is just plain wrong.

"Most of the money to pay for these plans comes from the tax savings that the business owner is going to get. When people talk about eliminating tax incentives, they don't consider this. We see these theoretical proposals and we look at them and say, 'You're kidding. This plan clearly comes from someone who has never set foot on the pavement, who has never worked with employers on these plans,'" Miller says.

If you want Uncle Sam to keep his mitts off your 401(k), IRA or other tax-advantaged retirement plan, tell your congressmen. "We need members of Congress to hear from their constituents that they care about these plans," Miller says.

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59 Comments
Steven Lawson
November 29, 2012 at 10:44 pm

Mark, Ellomae,listen to yourselves. The rich could pay more. The 1%'ers don't need so much. They have too much.
One simple question or more precisely, one simple answer.
HOW MUCH? What is the amount of spending that would make you happy? How much would it take to give you everything you want?
I submit that it would, in the end, be 100% of what everyone else has. Except you of course. Your not one of those greedy rich folks. If we just take everything from the 1% ers, we could divide it up fairly among all the rest.
That would be FAIR!!! Where did this vindictive, nasty, I'm a victim attitude come from?

ken c
November 29, 2012 at 10:24 pm

should i cash out on my 401k now i have 5 years befor my retirement. thank's

Richard Mika
November 29, 2012 at 9:56 pm

You are correct, Mark, it IS simple to correct the fiscal problems we face, but not the way you say.First, do away with the golden retirement and medical packages of politicians, especially the crooks in Obama's regime. Do away with the 16th Amendment and replace it with the fair tax. Reduce the federal workforce and put what is SUPPOSED to be the individual states responsibility back to them. Make EVERYONE pay the taxes owed, including the current executive staff personnel, and quit letting peoplel pay 10 cents on the dollar. They owe so much because they refused to pay their taxes, unlike the majority of the people. Do away with the corporate farm subsidies. Del Monte doesn't need tax subsidies. Reign in the EPA. Reign in the NLRB, they are just for the unions, not the every day worker.Do away with the Federal Dept. of Education. That is the responsibilty of the individual states. Enforce our immigration laws. Illegal immigrants should NOT be able to collect Social Security, welfare payments or medical paid for by AMERICAN workers.Reinstate and enforce true and meaningful welfare reform. The so-called "RICH" DO pay their share, and more, unlike the ones on welfare who have been on it since they could get on it, the drug dealers, the illegals and prostitutes. They pay nothing, but drastically drain our precious resources.

Ellomae De Mond
November 29, 2012 at 9:19 pm

Eliminating tax deductions on investments will indeed hurt seniors like myself. Since we were "depression babies" we knew how to save and spend frugally. Don't tell me the 1% can't return to the tax rate before the Bush Tax cuts. They can and they still will continue to do very well! My husband never in
corporated his Dental Practice so for 43 years he paid double rate on his production for pay - roll taxes. Yet we manage to live comfortable, educate our 4 children,and save for retirement.
Now I am able to live comfortably. Such will not be the case, if
The Republicans continue their vendetta against raising revenue
and imposing draconian spending cuts!

Mark Thomas
November 29, 2012 at 9:18 pm

All you are crazy. I voted for Obama, am a Nam vet, worked for the same firm for 32 years paid all my dues. Please let's sit down and not talk past each other but to each other. The rich should pay more, social security age and medicare age should be raised and the tax code modified so people like Willard pay more that 13% Also tax people who sent their money off shore and tax them again when they try to bring it back End the Wars, It is really fairly simple if we would just forget the politics and TALK

Steven Lawson
November 29, 2012 at 8:53 pm

Folks, It's over. The vote has been tallied. There are now, officially, more people riding on the wagon, than there are pulling the wagon.
When the slackers discovered that all they had to do was vote in someone who promised to take money from those who have it and give it to those who don't, because it's "FAIR", we were doomed.
It really is our own fault. We allowed the pretender to be elected. God help the USA now.

I. Carroll
November 29, 2012 at 8:50 pm

I have been working since I was 14. Started at 85 cents an hour. I have saved all my life. Why should I be punished for doing what was right? Why is it that these lazies want everything that people like myself have worked and struggled for. I say to them "get off you duffs and get a job, have some self-respect for yourself and stop waiting for handouts. We need fiscal sanity/responsibility in government. It is getting totally insane!!

jim southerland
November 29, 2012 at 7:50 pm

This will be a cake walk for obama to eliminate retirement tax breaks. It will be a very simple class warfare issue. Most of the people who voted for obama do not have IRAs or 401Ks. The party line will be that it's not fair for the 'rich' to have these tax breaks, while he reminds his supporters that it's really not fair for the 'rich' to have IRAs while his base does not have them.

Not fair according to the surreal world of our new order.

His supporters will back him on this issue in a heartbeat. Nothing like the politics of class warfare, resentment and reprisals. You old rich white people only have these accounts because you stole the money from the poor.

bee gee
November 29, 2012 at 7:44 pm

I worked all those years towards my retirement! Now I find myself so poor with my social security placing me financially below the poverty level with the IRS. What little I do have for emergencies in my retirement savings, if they attack that, will there even be any emergency money left? When I say emergency, I mean paying $500. for Insulin when I have to reorder every few months, that ain't cheap! My social security check won't even help with that kind of payment or on all the other meds I now have to take daily. It just seems inevitable I'll have less and less as I continue on my journey of retirement life. Thank you overblown hiring of homeland security!!!

J.Ryan
November 29, 2012 at 7:26 pm

I agree with Thomas M. Nichols. He has a firm grip on what needs
to happen and in doing this maybe some sanity will return to our congressmen and women, who by the way earn a very good living on the backs of the people of this nation. Why do they want us to believe they are NOT part of the wealthy!