patrick.net

His plan will never fly. 401-k programs, tax wise, are like pensions where you don't pay taxes on the amounts contributed but taxed when the money comes out. As a rough estimate for the amount that would need to be socked away to equal that of a military pension, that is about 75% of a person's wages. To put pensions and 401-k's on an equal footing under Biden's plan, for tax purposes we would have to show a taxable income for service members 75% higher than they are reported now, but all that money going into their "pension account". This would dramatically increase the taxes on the remaining pay. This would also play out that way for state and municipal employees as well.

Therefore, this plan ain't going anywhere.

"We're from the Government and we're here to help"

i'll only vote for Biden if I get a 200k a year no show job at a Ukrainian natural gas company.

The Biden plan is based on sowing resentment among those who already pay low tax rates. It's similar to the bellyaching we got over the last tax cuts, where people who already paid no taxes demanded they get a tax cut too!

Just switch to a "flat tax" system so that everyone pays the same rate; then if there's a deduction for 401k everyone would get the same savings benefits. When someone making $40k and now paying no or almost no taxes suddenly see his 25% flat tax rate, they can be happy that they are getting the same 401k benefits as the person who used to be pay that rate or (much) more.

Another aspect: those that are getting a bigger deduction under the current system are probably also going to retire with a lot more money, so when they withdraw, they'll be hit with a bigger tax at the other end.

SunnyvaleCA says

Another aspect: those that are getting a bigger deduction under the current system are probably also going to retire with a lot more money, so when they withdraw, they'll be hit with a bigger tax at the other end.

Great point, this is actually double taxation.

I’ll probably just stop working for the man and just start doing cash jobs like all the “poor” people I know. I’m tired of working this hard only to be told that I don’t pay my fair share. Think I’ll just start doing handyman stuff for beer money and start collecting my dole. Thanks joe!

TrumpingTits says

SunnyvaleCA says

Another aspect: those that are getting a bigger deduction under the current system are probably also going to retire with a lot more money, so when they withdraw, they'll be hit with a bigger tax at the other end.

I get a real crack out of all the Roth IRA folks out there. They think they won't pay taxes when they withdraw. I suppose they plan on getting any decent amount back from Social Security relative to what they put in, to.

Hahahahahahahahahah.

Some of them even believe their investments will go up.

TrumpingTits says

I get a real crack out of all the Roth IRA folks out there. They think they won't pay taxes when they withdraw

I think you gotta have a mix. It’s likely that the government will change the minimum distribution schedule and increase the brackets to stick you with a big bill on the end of a pre tax 401k.

Having a split between pre tax, after tax, and brokerage lets you play games with your sources of income for favorable tax treatment.

But yeah, I max my 401k pre tax before doing a Roth then rest goes in regular brokerage.

They zoom in on an issue, and pick which factors to consider, and then claim they're making things more "fair" and "equal".

Here they say to be "equal" people should get an equal tax benefit from deductions due to 401k contributions. They neglect to mention that these people who currently get more benefit, do so because they earn more money, and so generally pay much more in taxes already, and this outsized benefit helps reduce some of this outsized tax bill they are forced to pay.

This isn't making things more equal - its a theft of money taken from the middle and upper middle class, and given to lower income people to buy their vote.

Equal would be when people each pay the same $87 per month, or whatever it costs, to pay a share of the monthly fire dept bill, and so on for all the services you use. Not the current system where you pay more regardless of usage, but rather you pay more because you work harder, longer, smarter and earn more.

TrumpingTits says

I get a real crack out of all the Roth IRA folks out there. They think they won't pay taxes when they withdraw.

Wait, the whole point of a Roth IRA is that you put in the money after tax so that you withdraw it plus earnings tax free, no?

Patrick says

Wait, the whole point of a Roth IRA is that you put in the money after tax so that you withdraw it plus earnings tax free, no?

You are correct.

I suspect though that they may make changes to that for "high income earners" to generate enough tax revenue for new programs like the Green New Deal. I anticipate also that there will be a means test for social security for "high income earners" as well (i.e., those in retirement who earn at least $120,000 or more).

By the way, Charles Scwab states hthis as far as Roth IRA for those Age 59 and under :
"You can withdraw contributions you made to your Roth IRA anytime, tax- and penalty-free. However, you may have to pay taxes and penalties on earnings in your Roth IRA. Withdrawals from a Roth IRA you've had less than five years."

Also, for those not 59 years old yet, the "55 year rule applies" and if you are under 55 then you can also use a SEPP (https://www.investopedia.com/terms/s/sepp.asp)

.........

Patrick says

TrumpingTits says

I get a real crack out of all the Roth IRA folks out there. They think they won't pay taxes when they withdraw.

Wait, the whole point of a Roth IRA is that you put in the money after tax so that you withdraw it plus earnings tax free, no?

Have Federal taxes been going up or down over the last couple decades? (Hint: lower)

Have rich people been in favor of doing away with income taxes altogether and going with a straight Federal sales tax instead? (Hint: yes)

A lot of people converted their regular IRAs to Roth IRA's because they had beliefs similar to yours. They were assessed mighty amounts for the conversion. From a government's standpoint if you can talk people into voluntarily paying more taxes you win.

The best tax is a tax on non-productive rent-seeking, as in taxing the rent charged on land (not the building, it's productive to build a building).

But the rich wouldn't like it at all.

I converted a modest-sized IRA to a Roth IRA in a year that I didn't earn all that much. So... maybe worth it to diversify. One of the benefits of a Roth is that you aren't forced to withdraw. So, you take your other minimal withdrawals year after year. When you finally want to buy that giant yacht, you cash out the Roth (hopefully tax free) and make the purchase. Sure, that year you'll probably be losing your social security, but at least it's not every year!

If you work in California, contributing to a Roth effectively is even harder. If you fleet the state upon retirement, you tax rates are almost surely going to be lower. Just wait until California tries to assess taxes on investments and retirement plans that were made (but not redeemed) while working in California. Hm... that's going to be a big legal battle.

TrumpingTits says

Yes...but not until the govt fucks you in the future by taxing it anyway.

That is what I am thinking. The Democrats who may control the White House and Congress due to demographics may tax Roth IRA deductions on those who they deem as "rich or wealthy", and that could mean those who make a lot less than $400,000 a year.

The Democrats want to pay for new make-work or make-job programs like the Green New Deal as well as pay for college.

The Democrats can only squeeze or shake down billionaires and multimillionaires so much to pay for these new programs as well as ensuring the federal debt to GDP ratio stays below 110%.

I look at it this way: if I can save money on taxes right now or save money on taxes some time in distant future I'd rather save them now. Therefore maxing out 401k every year is a fucking must. It's the best tax-optimization vehicle for an average working stiff.

Eric Holder says

I look at this way: if I can safe money on taxes right now or save money on taxes some time in distant future I'd rather save them now. Therefore maxing out 401k every year is a fucking must. It's the best tax-optimization vehicle for an average working stiff.

Yup. If you have an effective tax rate above 3-4%, maxing out the 401K is a no-brainer to let it grow while not paying a dime on what was invested. Is there a risk taxes will be higher at retirement age, of course. Is there a risk you could die and you were paying the tax man full boat not enjoying your life as much in the present, absolutely. I'll take saving now and also enjoying life more by not giving the government their cut until later.

Just an interesting perspective: the Roth lets the IRS receive the money up front while depriving future generations the collection of that money. It's sort of like the government issuing bonds or entering into really bad (for the taxpayers) pension plans: government gets to spend lots of "extra" money right now while screwing over future generations. The Roth is essentially yet another form of hidden government debt.

"Will Biden’s 401(k) plan help you or hurt you?"

More general question: Is there anything that Biden Harris will do that will benefit me?

SunnyvaleCA says

More general question: Is there anything that Biden Harris will do that will benefit me?

Are you a member of the ccp? If not then no.

Just some thoughts on if a 401k is worth it at all...
• If you employer matches or partially matches, you're getting some free money. Good deal.
• If your tax bracket is higher now while working than it will be after you retire, you'll be avoiding taxes. Good deal. (Maybe you flee California to avoid the 9.3% or 13% or maybe you expect to have lower income when you retire; either way.) This works against a Roth.
• If your investments are continually collecting dividends and/or capital gains, the 401k won't double tax those whereas outside the 401k you'll be taxed on those profits each time before you have a chance to reinvest them.

Otherwise, the 401k has no benefits but some downside: the money has withdraw restrictions until you are old enough and you are forced to take out some every year after you are old enough.

So, if none of those 3 bullet points applies to you, there's no benefit to a 401k. (Good luck buying and holding only stocks that pay no dividends and that you never sell to buy something else, but it could happen!)

If you have $A to start, there's an increase factor of B due to investing, and there's a factor of C due to taxes you'll see that A x B x C = A x C x B due to associative and commutative properties of multiplication . (notice the switched position of B and C) In other words: it doesn't matter if you get taxed at retirement (A x B x C) or on the starting money (A x C x B). Both are mathematically the same.

SunnyvaleCA says

Just some thoughts on if a 401k is worth it at all...
• If you employer matches or partially matches, you're getting some free money. Good deal.
• If your tax bracket is higher now while working than it will be after you retire, you'll be avoiding taxes. Good deal. (Maybe you flee California to avoid the 9.3% or 13% or maybe you expect to have lower income when you retire; either way.) This works against a Roth.
• If your investments are continually collecting dividends and/or capital gains, the 401k won't double tax those whereas outside the 401k you'll be taxed on those profits each time before you have a chance to reinvest them.

Otherwise, the 401k has no benefits but some downside: the money has withdraw restrictions until you are old enough and you are forced to take out some every year after you are old enough.

So, if none of those 3 bullet points applies to you, there's no benefit to a 401k. (Good luck buying and holding only stocks that pay no dividends ...

That's the only correct answer. People who think a Roth is worse forget that the money is not yours until you pay taxes and penalties. What's stopping them from changing taxes and penalties on traditional 401ks tomorrow? Nothing. Though I avoid 401ks in general I have more money in traditional than Roths but in the end every 401k is a suckered bet and only good for keeping people lacking financial discipline from tapping their funds frivolously.

mell says

People who think a Roth is worse forget that the money is not yours until you pay taxes and penalties. What's stopping them from changing taxes and penalties on traditional 401ks tomorrow?

How's Roth immune from that? At least with 401k you have already received your tax benefit every year you contributed. If they decide to renege on Roth no-tax promise the holder will be taxed AGAIN.

They never do anything to benefit the people. They are there to make money.

SunnyvaleCA says

If you have $A to start, there's an increase factor of B due to investing, and there's a factor of C due to taxes you'll see that A x B x C = A x C x B due to associative and commutative properties of multiplication . (notice the switched position of B and C) In other words: it doesn't matter if you get taxed at retirement (A x B x C) or on the starting money (A x C x B). Both are mathematically the same.

True. It doesn't matter whether you pay 15% tax now or decades later after compounding, it works out the same, assuming the tax rate you owe doesn't change.

However, it does make a difference if you alter your investments during that time. You're 3rd bullet point covers this via your mention of capital gains, but I'll say it bluntly:

•The ability to change investments without triggering capital gains tax is a major benefit of both 401k and IRAs.

Hircus says

The ability to change investments without triggering capital gains tax is a major benefit of both 401k and IRAs.

Absolutely. This is huge.

Mathematically, over the long run, the vast majority of people must lose value on their financial investments.

IRA accounts either Roth or Traditional do not allow for losses to be written off against income.

People with substantial financial investments always assume the value will increase for them even though they realize that for most people the value will decrease.

401K is the Retirement plan for Losers.

Had everyone's 401K been an actual interest baring Savings account, most people with 500K in their 401K now, would have over 1.5 million dollars in a savings account.
Everyone has lost the bulk of their 401K three times, since Alan Greenspan sabotaged the Tech market in early 2000 upon Bush taking office.
More over that 1.5 million would be all yours, already taxed when you earned it. Everyone thinks 401K is tax free money. But they couldn't be more wrong.
If they invested it post tax, they would only pay 15% tax on that money. but in retirement when they need it the most, they'll be paying 30% tax on every cent they withdraw.

Don't be a sucker and put your money in 401K, it's a shit financial vehicle. Hostage finances and nothing more.

Tenpoundbass says

If they actually invested it post tax, they would only pay 15% tax on that money.

Okay I see your good point.

1) If one would just invest in a non-retirement account a hyper-growth "tech" company like Amazon and hold onto it for at least 1 year then all they would end up paying 0%, 15%, or 20% capital gains tax.

If you make less than $40,000 (single) or $80,000 (couple) then you pay 0%. I wonder if Biden would change that.
reference:https://www.bankrate.com/investing/long-term-capital-gains-tax/

2) Whereas if they invest in a hyper-growth company in a 401k (i.e., pre-tax money) then your withdrawal is taxed as ordinary income at the rate for your tax bracket in the year you make the withdrawal. So you would end up paying at least 10%.

That is why I only invest in mutual funds with high turnover (capital gains) and dividends for my traditional (ie.. roll over) IRA account. I did the same for my 401K before I rolled it over into my traditional IRA. You want to be in a 30% stock/70% bond or 50% stock/50% bond fund for your traditional IRA. That way the dividends and capital gains accumulate while you pay no taxes until withdrawal.

.

Also I don't think the bad economic downturns the last 20 years, were purely organic.

These greedy bastards intentionally sabotage the economy, when a large swath of the workforce is slated to retire and drag their value down with them.
So crash the economy, the value of the stocks fall hard, those not fully vested gets shit canned, and those that are, are forced into an early retirement with over 40% of their nest egg totally evaporated. Since the companies they invested in are the rocks, and rumored to go under. The then move that money to something else. And those original companies all end up rebounding a few years later. While the retirees never recovered their nest egg.

I know about 4 people in the last 20 years that's happened to. As well as countless workers that took hits on their 401K that moved it out of those failing businesses, only to realize had they stayed it would have rebounded.

ad says

2) Whereas if they invest in a hyper-growth company in a 401k (i.e., pre-tax money) then your withdrawal is taxed as ordinary income at the rate for your tax bracket in the year you make the withdrawal. So you would end up paying at least 10%.

As opposed to paying at least trice that now.

ad says

. That way the dividends and capital gains accumulate while you pay no taxes until withdrawal.

Personally I would like to have a savings account earning 30 or 40K a year, and then just writing a check for the 10K or so, at the end of the year for taxes and be done with it.
If I want to pull out 500K to make a purchase or large investment, it's then nobodies business but my own.

Hurt. Duh.

Tenpoundbass says

Had everyone's 401K been an actual interest baring Savings account, most people with 500K in their 401K now, would have over 1.5 million dollars in a savings account.

Not so, for two reasons:

1. interest rates are about zero and have been for years
2. you would get paid your interest each year and then the government would tax it

With a 401k, you get interest on the accumulated untaxed interest.

Similarly, if you trade stocks in a 401k rollover (where you are in control of investment choices instead of your former employer) you'd be able to take profits without tax and re-invest in other stocks until you retire. The compounding effect can put you way ahead of a taxable account.

It's a huge difference.

I have a few different accounts but the bulk is in a Roth 401(k).

To quite my tax guy "plan based on as the laws are not as you expect them to be down the road"

I pay the tax now at a known rate and (unless something changes) take that money out in 30 years with NO TAX.

I'm diversified enough and have a long enough time horizon that I should be fine.

That said how much will I need in retirement? Probably less than I do now, so long as I'm healthy. Not only will the mortgage be paid off but I won't need to fund retirement anymore which frees up the almost $20k a year im putting in currently.

Ideally I'll travel, golf, be involved in local affairs and charitable causes. Mabey even adopt the Rin life and get up to Montreal every once in a while.

But I can't help but assume that Bidens Plan will hurt rather than help. I have yet to see a Democrst who was for lower taxes for those earning more than the national median.

FuckCCP89 says

mell says

People who think a Roth is worse forget that the money is not yours until you pay taxes and penalties. What's stopping them from changing taxes and penalties on traditional 401ks tomorrow?

How's Roth immune from that? At least with 401k you have already received your tax benefit every year you contributed. If they decide to renege on Roth no-tax promise the holder will be taxed AGAIN.

It's harder to confiscate your money once it has been released as truly yours but there is no guarantee.

mell says

FuckCCP89 says

mell says

People who think a Roth is worse forget that the money is not yours until you pay taxes and penalties. What's stopping them from changing taxes and penalties on traditional 401ks tomorrow?

How's Roth immune from that? At least with 401k you have already received your tax benefit every year you contributed. If they decide to renege on Roth no-tax promise the holder will be taxed AGAIN.

It's harder to confiscate your money once it has been released as truly yours but there is no guarantee.

Herein lies the rub: they won't be released as truly yours until you reach the required geezer age.

Eric Holder says

Herein lies the rub: they won't be released as truly yours until you reach the required geezer age.

With the penalties AND the taxes, early withdrawal becomes a tax windfall for the GOV.

It can wind up being from 30-40 percent of the lump sum withdrawn money, depending on tax bracket. Oddly, that does not prevent a lot of people from withdrawing the money, anyway, for various short term goals.

Hircus says

•The ability to change investments without triggering capital gains tax is a major benefit of both 401k and IRAs.

Yup. That's why I refer to my self-directed 401k as my "gambling account." That's where I do the short-term speculative trading. The non-401k is buy-and-hold style so as to minimize capital gains taxes (at least until I flee California).

Tenpoundbass says

Had everyone's 401K been an actual interest baring Savings account, most people with 500K in their 401K now, would have over 1.5 million dollars in a savings account.
Everyone has lost the bulk of their 401K three times, since Alan Greenspan sabotaged the Tech market in early 2000 upon Bush taking office.
More over that 1.5 million would be all yours, already taxed when you earned it. Everyone thinks 401K is tax free money. But they couldn't be more wrong.
If they invested it post tax, they would only pay 15% tax on that money. but in retirement when they need it the most, they'll be paying 30% tax on every cent they withdraw.

I don't understand your 1.5 million greenspan statement.

re 401k

I think at some point it gets futile to make blanket statements about whats best because people's lives and tax situations are pretty unique. There's trade offs to most choices. A hobby of mine over the past decade is writing financial simulation calculators that attempt to crunch some of these very complex investment+tax scenarios, and I've learned how complicated they can sometimes be, and how sometimes small lifestyle/retirement changes can greatly affect the optimal choices regarding investment and tax strategies.

Anyway, with a 401k you also save money right now because its contributed pre-tax, which lowers both your AGI and MAGI, which may help you qualify for things that are only afforded to mid and lower-income folks, such as a roth ira and various other govt handout/tax breaks etc... But most importantly, this pre-tax contribution shaves a chunk of income off what would otherwise be taxed at your very highest federal and state marginal rates.

I think most people will have much higher income during working years, than in retirement. This means its likely they will pay lower income tax rates in retirement, and for some, much lower. While taxes generally go up over time, your income generally goes down in retirement, making your marginal tax rates go down too, and some people may even retire to locations with significantly lower, or no, state income tax rates.

For example, someone currently earning $125k ish might have a top marginal rate of 24% federal, and 9% CA income. So if they put 20k into a 401k, thats 4800 + 1800 = $6600 in tax saved now (in other words, if they contributed post-tax to a normal trading account, their 20k would only would only work out to $13,400 after tax). If in retirement, they had taxable income of 40-60k due to 401k withdrawals and any residual income sources, and moved to a no income tax state, they might only pay something like 12 to 20% federal.

401k result
($20,000 x 30yrs compounded at 7%) = $152,245
- 20% federal income tax upon withdrawal = $121,796

vs post-tax investment result (assumes no cap gains on withdrawal, although you may have 15% depending on retirement income, which = $13,290 in tax)
($13,400 x 30yrs compounded at 7%) = $102,004

I know this is a lower income example, and includes fleeing CA for a place like TX/FL, but it is valid for many people. Some lower income in retirement ppl wont even pay 20% federal, but maybe 12% if their taxable income is under 40k, making the difference even wider.

Even higher income folks will have similar, although less polar results. The big point is that most people will have lower tax rates, due to lower income, in retirement. The 401k route would need to pay about 33% tax on withdrawal to get beat by the post-tax no cap gains example, or 42% with cap gains.

I'm not including tax increases / changes, mostly because it's hard to speculate how they will transpire. Sometimes I feel its best to just calculate the differences, and then one can look at the result and ask yourself "how much would taxes need to rise to make this scenario no longer hold an advantage?"