Potential 401K Caps

[Ben]

There is talk, as part of the tax cut proposals, to limit pre-tax contributions to 401Ks to $2400. It appears to be Republicans, yes REPUBLICANS that are floating this. #%)^(#*# $($^*#$   #@(%#%(#%.

Republicans are supposed to be the people giving us tax breaks and letting us keep our own money for things like retirement, not taking away ways for us to keep more money and pay less taxes.

https://www.marketwatch.com/story/theres-talk-of-capping-401k-contributions-at-2400-per-year-2017-10-20

[Angel Eyes]

Only $2400??   Ouch.

[Nick1911]

That would suck.  Awesome job guys!

[Scout26]

The stupid party becomes the 'tard party.

I hate this whole "Pay for the Tax Cut" Bushwa.    Here's how you pay for tax cuts.....


CUT THE ^(#&%#&*}#%$%@*&*@#&@(*^&#%^(*@#&^*#*(&&#{)#*&*&^$*&#@!  BUDGET  !!!!!

[Firethorn]

Only $2400??   Ouch.

Indeed.  the current $5.5k/year for roth IRAs isn't bad.  I certainly wouldn't want to cut it by more than half.

People already don't save as much as they should.

[Angel Eyes]

Indeed.  the current $5.5k/year for roth IRAs isn't bad.  I certainly wouldn't want to cut it by more than half.

The proposed cap hits 401(k) savings even worse:

https://www.shrm.org/ResourcesAndTools/hr-topics/benefits/Pages/2017-irs-401k-contribution-limits.aspx

Employee 401(k) contributions for plan year 2017 will once again top off at $18,000 with an additional $6,000 "catch-up" contribution allowed for those turning age 50 or older. But maximum contributions from all sources (employer and employee combined) will rise by $1,000.

So dropping from $18K ($24K for us old pharts) to just $2400?  That's almost pitchfork-and-torches time.

[Ben]

I saw an interview with Trump yesterday, in which he said that 401Ks would absolutely not be touched. I'm wondering if that's him reacting to the outrage from everyone from Joe 9-5 to Wall Street, or what I would consider worse - the Trump hating GOPe came up with this on their own, sticking it to Americans just so they could stick it to Trump. That would anger me.

[Scout26]

I saw an interview with Trump yesterday, in which he said that 401Ks would absolutely not be touched. I'm wondering if that's him reacting to the outrage from everyone from Joe 9-5 to Wall Street, or what I would consider worse - the Trump hating GOPe came up with this on their own, sticking it to Americans just so they could stick it to Trump. That would anger me.

Or the media/left coming up with this on their own because of the alleged need to "Pay For" any tax cuts.  (So probably a combo platter of the GOPe and left/media).

[MechAg94]

1.  The link doesn't work.  I will try it at home.

2. Which Republicans are floating this?  Blaming Republicans in general doesn't help me.  I need better targeting. 

[Northwoods]

Supposedly, according to NPR (which I only left on when I got in SWMBO's car to take the youngers to the playground because this was the topic) they are planning to increase Roth IRA to "compensate" for the lower 401k limits.

The R's will well and truly be earning the Stupid Party moniker if they persist with this idea.  While investing more into Roth's is generally a good idea very few people will actually do that.  This would screw the middle class in a big way, not to mention the Wall Street types.  Also, what would it do to the broader economy if you suddenly cut the several thousand dollars a year that 10's of millions of workers put in their 401k (or equiv)?  That's a lot of money going into the stock market that would no longer be available for capital raising.

[K Frame]

Well, latest is that 401K limits are off the table.

http://www.chicagotribune.com/business/ct-biz-trump-tweets-401k--20171023-story.html

[MechAg94]

I was thinking about matching contributions.  My company stopped doing pensions years ago, but increased matching 401K to compensate.  That alone would be over that limit.  While I am not resistant to switching over to after tax investments, it would change things up a bit and I would be worried I would get less money out of that matching scheme than I do now (not including taxes).

All that is why I would curious who was behind this idea.  Makes me wonder if it is one of the rich guys who has been in Congress a while.

[K Frame]

A company match doesn't count toward an employee's tax deferred contribution amount.

Would the proposed plan have changed that?

[Northwoods]

Mike - unclear but that is the impression I got. Also there is limit on matching dollars now too. Iirc total pretax additions can't be over $40k roughly.

[Ben]

Mike - unclear but that is the impression I got. Also there is limit on matching dollars now too. Iirc total pretax additions can't be over $40k roughly.

Wouldn't the limit affect how much your employer matched if they only did in fact match, versus doing a straight contribution. The fed.gov contributed to the first 5% of my TSP contributions. 5% was a lot more than $2400 for me.

I've not seen particular names that were attached to this scheme - they only ever talked about the committee itself in anything I read. My understanding is that they were trying to "ROTHisize" retirement savings, in that they wanted people to pay the income tax now, and have no income tax in retirement. I guess that would benefit some people, but I think most people would prefer to do pre-tax dollars in their big income years, then pay the tax when they are in retirement, when it's usual;ly a much lower tax rate. That ends up being a lot of money growth in the period from employment to retirement.

[Ben]

I just ran into this article, which seems to be the argument for the 401K reduction. I'm not sure I buy it, even for the millennial generation.

http://www.businessinsider.com/trump-tax-plan-401k-retirement-2017-10

[cordex]

I do both Roth and regular 401ks. Roth feels like investing, regular feels like investing for the government. Yes, I know there are fantastic reasons people choose regular over Roth and I know the scenarios where it makes a ton of sense. Even so, knowing that an ever-growing chunk of my investment is going to have to go to taxes bugs me.

[Firethorn]

I do both Roth and regular 401ks. Roth feels like investing, regular feels like investing for the government. Yes, I know there are fantastic reasons people choose regular over Roth and I know the scenarios where it makes a ton of sense. Even so, knowing that an ever-growing chunk of my investment is going to have to go to taxes bugs me.

I'm about one third between tax deferred, untaxed, and fully taxed.  Though my income is low enough that the last is mostly untaxed as well.

A Roth IRA and a portion of my TSP is tax free due to combat zone. 

The last is because I did some math and figured that I might be able to retire early, but that means withdrawals before 65 or whatever.  So I have one heck of an emergency fund.

[Northwoods]

You can withdraw from your tax advantaged accounts without penalty starting at 59.5 years old. 

Plus you start to have mandatory withdrawals starting at 70.5 (exception is non-inherited Roth IRA, but Roth 401k still had mandatory minimum withdrawals).  And those get steeper the older you get.  By the time you're 73 (assuming married to someone <10 younger) the required withdrawals exceed the 4% annual amount most people target for perpetual invested wealth.  Of course, you can reinvest the excess back into mutual funds (or whatever) in a non-qualified account if you wish.

[Firethorn]

You can withdraw from your tax advantaged accounts without penalty starting at 59.5 years old.

Yeah, I could do that, didn't realize it at the time though.  I keep maxing out my Roth IRA contributions, but I'm no longer eligible to contribute to the TSP.  I'm not eligible for a 401k.  *shrug*.

I probably could have socked more money into the TSP while I was still in, rather than into a regular mutual fund, but that money is relatively locked up tight.  

The other thing I found out later is that you can take your *contributions* out of a Roth IRA penalty free, even years later.  So I could have put more into the TSP, then used the roth money as an emergency/retirement fund.  Didn't really want to touch it, and like I said, my taxable mutual fund still ends up close to $0 in taxes due to the long term capital gains stuff.  Only $120 ended up non-qualified last year.

No required withdrawals from a roth is nice, hell, I can keep contributing to it.

[Ben]

You can also take withdrawals from your 401K before 59 1/2 if you retire anytime in the year you turn 55.

Back on the OP, though I still haven't seen documented language of exactly the Rs wanted to do, I caught some talk on the radio this morning that suggested they actually wanted to keep the 401K amounts the same, but just make only the first $2400 pre-tax, and do the Roth thing for the remainder.

While I still wouldn't have liked that for me personally while I was working, that would be a hell of a lot better than ONLY $2400. If this is true, while I normally default to blaming the MSM for fake news on the subject, this still seems to fall directly into the laps of the Rs as incredibly bad PR on that part of their plan. The lead should have been some spin on how they would apply Roth rules to 401Ks, with a big, bolded headline about how the amounts weren't going to be messed with. Just terrible execution on the public perception and information side.

[Ben]

I probably could have socked more money into the TSP while I was still in, rather than into a regular mutual fund, but that money is relatively locked up tight.  

Lots of new and better rules for TSP are in the works to make the TSP more "liberal" and 401k-like. My understanding is that it has already passed both houses.

I'm looking forward to it. I really didn't want to withdrawal from the TSP as an annuity. I'm considering my pension (and SS, if it's still around) as a "psuedo-annuity" and don't want to lock the TSP money up in the same way.

[brimic]

As I keep telling people ‘Roth IRAs are a great idea until congresscriminals decide to tax withdrawals 20 years from now’
I get glassy-eyed stares followed by ‘they won’t’ or ‘they can’t’
Childlike faith in government always amazes and amuses me at the same time.

 

[Ben]

As I keep telling people ‘Roth IRAs are a great idea until congresscriminals decide to tax withdrawals 20 years from now’
I get glassy-eyed stares followed by ‘they won’t’ or ‘they can’t’
Childlike faith in government always amazes and amuses me at the same time.

 

That's part of my thinking as well.

[cordex]

As I keep telling people ‘Roth IRAs are a great idea until congresscriminals decide to tax withdrawals 20 years from now’
I get glassy-eyed stares followed by ‘they won’t’ or ‘they can’t’
Childlike faith in government always amazes and amuses me at the same time.

 

Twenty years from now the government could also seize all 401k investments wholesale.  Why invest at all?