Home Forums Hunting & Shooting Hunter's Campfire There's Talk of Capping 401K Contributions

This is a really bad idea that Congress is currently considering as a part of tax reform.

https://www.marketwatch.com/story/t...ontributions-at-2400-per-year-2017-10-20

ya i read about that. short term gain, long term pain. these fuggers will continue to shoot themselves in the foot until they have no feet left.

Don't know if that's true or more subversive crap from the media, but if true, consider that it will cut the tax you pay when you draw money out. Conventional wisdom is that you'll be in a lower bracket then, but many people use a chunk of their savings right at the beginning of their retirement. Having after-tax money in the account to draw can save you money then, as long as you're past the age for penalty-free withdrawals. Also, if dire necessity forces you to pull some out before retirement, the after-tax money can be used and you only pay the 10% penalty, not that plus taxes.

The important thing is to save, and work the system, whatever it is, to your best advantage.

All that said, I agree that the slimy bastards continue to amaze me with the crap they come up with. If we ever get a Constitutional convention put together, one of the changes should be that everything that applies to us, applies to them exactly the same way.

A few more details, this is being described as the "Rothification" of retirement savings. I am skeptical that this sort of change will encourage saving for retirement.

http://thehill.com/policy/finance/356489-financial-industry-worried-gop-tax-plan-will-change-401ks

It'll never happen, Wall Street takes in too much money from the constant flow of dollars into 401K's. They're not going to let that get taken away.

Any tax reform bill will take into account Wall Street's wants first, that's just the way it works. Congress is bought and paid for by wall street. In just the same way Obamacare was written to enrich the big health insurance companies and pharmaceuticals. Follow the money first, all else is just gum flapping.

That's a terrible idea. If anything, they need to raise the cap. With company sponsored pensions dying off and social security becoming questionable, saving for retirement is more important than ever. The pre-tax 401k money is the best thing allot of Americans are offered. Is this essentially a sleazy way to raise taxes on those preparing for their future by increasing their taxable income?

As long as you can put amounts in excess of the 2400, I don't see it as much of a threat to retirement savings. Money managers could do this automatically.

Actually, it is absolutely wonderful for anyone under about 50.

Take a 25 year old that puts away 10% of his $50,000 household income per year (that's under the national average household income, btw). At age 65, invested at the average stock market return of 11%, that turns into $3,200,000 and change. $200,000 of that are contributions, the rest is interest.

In the traditional pre-tax 401K structure, the whole shebang is taxable. Keep it in a Roth structure, and EVERYTHING is tax free..... Three million in tax free interest income. That's about a cool million in tax savings in retirement.

Why is anyone complaining about this?

If you can't put it in Roth's either, real estate and mutual funds that create little capital gains (i.e. low turn over funds such as index funds) can approximate Roth, although there you will be taxed at capital gains rates, but they are considerably lower than income tax rates.

Encourage even more people to blow their money, NOT save, and become even more dependant on the government. All in the name of allowing the govt to get a little more tax money up front, rather than waiting to tax the money on the back end, when it's withdrawn. $2400 a year is a joke...

Exactly what a business friendly Congress wants. Our "system" is designed around consumption, the more we save the less we consume and business hates that.

Flat tax to pay for what we NEED, fairly distribute the burden among all citizens.

Geno

That is the way I see it from the snippets given early in this thread. It sounds like they are drastically increasing the amount of money that can go into the Roth style investment, providing better investing options for most of us. The government would lose in the long run, losing out on the taxing of all the money that is made in interest. The Gov would collect more money now.... if that is the goal.

Congress has been changing 401k rules ever since they cam into being in 1978. Doesn’t matter I’ve made a crap load of money since I first start investing in them in 1986 and across several employers. I’ve used both the pretax and after tax, called “Roth” now, contribution process depending on my investment goals. Just run the numbers out every year and make your play.

No need for a freak out.

I agree with some of your concepts, but your numbers suck. You're mixing apples and kumquats, repeatedly

25 year old doesn't have 50000 average income, I'll bet.

If he puts in 5000 taxed, he had to earn 6000 (20% income tax)

How many 40 year spans had 11% annual growth? NASDAQ? DJIA? what fund had that 40 year growth, which 40 years? Pick 40 years with 1987 and 2008 in it?

25 year old is paying rent, car payment, utilities, food, what does that add up to? 500 a month might be better on a house. unless your town takes a crap.

I agree, if lucky, retirees will be in higher bracket than when they started. who knows what the hell the rules will be then.

Sycamore

Fair enough. Let's take a closer look at those "sucky" numbers.

Note I said HOUSEHOLD income. A married 25 year old with two incomes at $12.50 per hour. Is that really an unreasonable assumption? That's more than 10% below the average household income. Further, I assumed NO raises for the entire 40 year span. I think that for a back-of-the-envelope scenario, it's rather conservative.

11% is the average annual total stock market return for the last 100 some odd years. That includes the crash of 29, and every other downturn in history. Black Monday, the Great Recession, all of them. As a matter of fact, pick any five year period, and there's about a 90% chance that an investment in the stock market gives a positive return. The average stock market return is three times that of bonds and real estate and more than five times that of gold. From 1990 to 2016, the S&P return was 10.94%. From 1909 to 2016, it was 11.96%. That's pretty darn consistent, don't you agree?

You can look up the stock market return for any period at http://www.moneychimp.com/features/market_cagr.htm. As the site mentions, the most important return is the 7% net return after inflation.

A common recommendation for retirement savings is 15% of your take home pay. A household at $50k gross is in the 15% tax bracket, so 10% of gross is actually a bit more conservative than the recommended 15%. That we have raised a generation of entitled consumerists that have no concept of saving, nor living within their means, is beside the point. There's lots of people with household incomes at $30K that are making it ok. If you can't make it at $50K, you need to learn how to control your spending.

Let's tart with driving a car that's paid for: the average car payment is almost $600 per month. Which is the amount of savings in this discussion. Now, let's go TOTALLY CRAZY, and have both husband and wife drive paid for cars! I know, whacky, right, but they would be able to save the 10%, AND put money away for the down payment on a home! But, let's not go into the absurd......

Tax cuts should involve the government looking inward. Not outward.





Dave

So the defined pension plans got tits up because they’ve been pilfered, robbed and mismanaged. In order to save for retirement and in lieu of a defined pension a worker has to make larger contributions to their 401K but if this arbitrary restriction is placed on the 401K there’ll be an entire generation without enough for retirement and that will place a huge demand on the government to make up the difference.

At $2400 a year max that means that over a 40 year career, not including interest or fees a worker can expect to have around $96,000 dollars for their retirement account....40 years from now. 😬

Quote: Dutch

Let's start with driving a car that's paid for: the average car payment is almost $600 per month. Which is the amount of savings in this discussion. Now, let's go TOTALLY CRAZY, and have both husband and wife drive paid for cars! I know, whacky, right, but they would be able to save the 10%, AND put money away for the down payment on a home! But, let's not go into the absurd......

What an unusual idea. Driving a paid for car. That's what we do. We have 3 paid for vehicles, 2 of which I bought used for cash. One is a 2005 Toyota Tundra 4WD, and a 2008 Chevrolet P/U truck, and my wife has the newest, a 2014 Toyota Highlander. The reason for 3 is for a spare in case one gets out of commission or one of our adult kids needs to borrow a truck. It sure is nice to not have a monthly payment. It helps my wife to be able to afford to put the maximum that her employer will match in her IRA every month. We wanted to be able to help our own family and not finance some banker's kid's education. Using other people's money is a bad idea IMO.

There is no law, whatsoever, that prevents a person from opening an account at a bank, investment broker or mutual funds company and save for retirement. So capping the 401K contribution means, only, that the tax credit for retirement savings are limited. Which, as I described above, is actually an ENORMOUS benefit for most tax payers.

Second, $2400 per year invested in the stock market at the average return of 11% for 40 years turns into $1.5 million. At the net-of inflation rate of 7%, that's $500,000 in today's dollars. Too light in my opinion, but not insignificant, and a whole lot better than what 95% of the population is doing.

Should be using a Roth IRA anyway. Maybe in addition to the 401.

Cap how much people can save for retirement. Heaven forbid they address their spending habits.