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Good God man. They are moving faster than I thought on destroying retirement plans.
First, no more tax deduction, it will be a "tax credit". That will undoubtedly morph into income limitations on a tax credit if you make over $100K in a few years.
Second, 401Ks for those that can't get one through their employer. Sounds all well and good. But, it will be an automatic 401K plan that could be government-based. Sound familiar? Like maybe from 1935, called the Social Security Act, which is no longer a retirement fund, but a tax to a slush fund.
https://money.usnews.com/money/reti...sident-bidens-proposed-changes-to-401-k-plans
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By Rodney Brooks, Contributor Jan. 22, 2021, at 12:55 p.m.
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Biden's Proposed 401(k) Changes
PRESIDENT JOE BIDEN HAS proposed changes to 401(k) retirement savings plans that will have a big impact on the tax break provided to 401(k) participants. If the Biden 401(k) plan were to become law, the tax deduction for contributing to a 401(k) would be replaced with a tax credit. This 401(k) change would likely result in high earners getting less of a tax break on their 401(k) savings and low and middle earners getting a bigger tax benefit.
https://money.usnews.com/money/retirement/401ks/articles/steps-to-take-when-preparing-for-retirement
Here's a look at Biden's proposed 401(k) changes:
Under current tax law, employees can have a set percentage of their salary invested in a 401(k) and defer paying tax on that money until it is withdrawn from the account. This tax deduction provides the greatest tax break to people with the highest incomes. For example, an employee earning $70,000 a year at the 12% tax rate can put $10,000 into a 401(k) and the tax savings would be $1,200. But a higher earner making $450,000 annually at the 35% tax rate who puts the same $10,000 in a 401(k) gets a tax break of $3,500.
Biden's proposal would end the tax deduction for contributing to a 401(k) and replace it with a tax credit. "Biden is proposing making it an equal tax break no matter what your income level is," says Bryan Bibbo, lead advisor at the JL Smith Group in Avon, Ohio. "The proposed tax credit is 26%, whether you are at $70,000 or $450,000."
The Biden campaign says this 401(k) change will "equalize" the tax benefits of 401(k) plans among various groups of employees. "Biden will equalize benefits across the income scale, so working families also receive substantial tax benefits when they put money away for retirement," according to a statement on joebiden.com.
The tax changes may also apply to 403(b) accounts for employees of nonprofit organizations, universities and government and 457 accounts for state and local government employees. "At 26%, everybody is getting the same credit," says Matthew Schwartz, a financial advisor at Great Waters Financial in Minneapolis, Minnesota. The credit could be refundable, meaning that workers who don't earn enough for the credit to offset their income tax liability would still receive the value.
The Biden administration is calling for the creation of an "automatic 401(k)" for those who don't have access to a retirement account through their job. "There are a lot of people not able to contribute to pensions or 401k(s)," Bibbo says. "(Biden's proposal) would create an automatic 401(k), which may be private-based or government-based. People who do not have access to a 401(k) now will have access to a 401(k) that they can contribute to and have contributions coming out of their paycheck."
These potential 401(k) changes signaled by the Biden campaign could significantly change the tax benefits of 401(k) plans and create new opportunities to save for retirement, especially for people who don't currently have access to a 401(k). These Biden 401(k) proposals are not current law and the structure of these potential 401(k) rules is subject to change.
First, no more tax deduction, it will be a "tax credit". That will undoubtedly morph into income limitations on a tax credit if you make over $100K in a few years.
Second, 401Ks for those that can't get one through their employer. Sounds all well and good. But, it will be an automatic 401K plan that could be government-based. Sound familiar? Like maybe from 1935, called the Social Security Act, which is no longer a retirement fund, but a tax to a slush fund.
https://money.usnews.com/money/reti...sident-bidens-proposed-changes-to-401-k-plans
President Biden’s Proposed Changes to 401(k) Plans
The 401(k) tax deduction could be replaced with a tax credit.
![](/proxy.php?image=https%3A%2F%2Fwww.usnews.com%2Fdims4%2FUSNEWS%2F7364b75%2F2147483647%2Fthumbnail%2F84x84%2Fquality%2F85%2F%3Furl%3Dhttp%253A%252F%252Fmedia.beam.usnews.com%252F9c%252F96%252F0025d167474489052baaabcfc051%252Frodney-brooks.jpg&hash=12ca02d212466bbb0a12e38b538dc442)
By Rodney Brooks, Contributor Jan. 22, 2021, at 12:55 p.m.
More
Biden's Proposed 401(k) Changes
PRESIDENT JOE BIDEN HAS proposed changes to 401(k) retirement savings plans that will have a big impact on the tax break provided to 401(k) participants. If the Biden 401(k) plan were to become law, the tax deduction for contributing to a 401(k) would be replaced with a tax credit. This 401(k) change would likely result in high earners getting less of a tax break on their 401(k) savings and low and middle earners getting a bigger tax benefit.
https://money.usnews.com/money/retirement/401ks/articles/steps-to-take-when-preparing-for-retirement
Here's a look at Biden's proposed 401(k) changes:
- The 401(k) tax deduction would disappear.
- Workers would instead get a tax credit for 401(k) contributions.
- The tax advantage of contributing to a 401(k) would be reduced for higher earners and increase for low and middle earners.
- The creation of an automatic 401(k) for workers without access to a workplace retirement account.
- Allowing caregivers to make catch-up contributions to retirement accounts.
Under current tax law, employees can have a set percentage of their salary invested in a 401(k) and defer paying tax on that money until it is withdrawn from the account. This tax deduction provides the greatest tax break to people with the highest incomes. For example, an employee earning $70,000 a year at the 12% tax rate can put $10,000 into a 401(k) and the tax savings would be $1,200. But a higher earner making $450,000 annually at the 35% tax rate who puts the same $10,000 in a 401(k) gets a tax break of $3,500.
Biden's proposal would end the tax deduction for contributing to a 401(k) and replace it with a tax credit. "Biden is proposing making it an equal tax break no matter what your income level is," says Bryan Bibbo, lead advisor at the JL Smith Group in Avon, Ohio. "The proposed tax credit is 26%, whether you are at $70,000 or $450,000."
The Biden campaign says this 401(k) change will "equalize" the tax benefits of 401(k) plans among various groups of employees. "Biden will equalize benefits across the income scale, so working families also receive substantial tax benefits when they put money away for retirement," according to a statement on joebiden.com.
The tax changes may also apply to 403(b) accounts for employees of nonprofit organizations, universities and government and 457 accounts for state and local government employees. "At 26%, everybody is getting the same credit," says Matthew Schwartz, a financial advisor at Great Waters Financial in Minneapolis, Minnesota. The credit could be refundable, meaning that workers who don't earn enough for the credit to offset their income tax liability would still receive the value.
401(k)s for Workers Who Don't Have Access to One
A significant portion of the workforce is not able to qualify for 401(k) tax breaks because a retirement plan is not provided by their employer. The Pew Charitable Trusts found that 35% of private sector workers over age 22 work for a company that does not offer a 401(k) retirement plan. Millennials (41%) are the least likely to have access to an employer-sponsored retirement plan, but over a third (35%) of Gen Xers and 30% of baby boomers are unable to take advantage of the tax benefits of a 401(k) plan.The Biden administration is calling for the creation of an "automatic 401(k)" for those who don't have access to a retirement account through their job. "There are a lot of people not able to contribute to pensions or 401k(s)," Bibbo says. "(Biden's proposal) would create an automatic 401(k), which may be private-based or government-based. People who do not have access to a 401(k) now will have access to a 401(k) that they can contribute to and have contributions coming out of their paycheck."
Catch-Up Contributions for Caregivers
Workers currently need to have earned income in order to be eligible to contribute to a 401(k) plan. Biden has proposed allowing caregivers to make catch-up contributions to retirement accounts, even if they are not earning a formal income.These potential 401(k) changes signaled by the Biden campaign could significantly change the tax benefits of 401(k) plans and create new opportunities to save for retirement, especially for people who don't currently have access to a 401(k). These Biden 401(k) proposals are not current law and the structure of these potential 401(k) rules is subject to change.