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What If We Ended 401(k) Tax Breaks to Save Social Security?

Posted on 2/6/24 at 1:05 pm
Posted by La Place Mike
West Florida Republic
Member since Jan 2004
28773 posts
Posted on 2/6/24 at 1:05 pm
That is the title of an article I saw today from "Think Advisor". I thought this board might find it interesting.

What You Need to Know:

The bulk of retirement account tax breaks benefit the affluent, Andrew Biggs and Alicia Munnell argued in a recent paper.

Research shows that tax-preferred retirement accounts don't boost overall household savings, they write.

Another group of researchers argues the plan would amount to double taxation and would ultimately make the Social Security program less stable.

End Tax Breaks for 401K to save Social Security?
Posted by LNCHBOX
70448
Member since Jun 2009
84034 posts
Posted on 2/6/24 at 1:08 pm to
quote:

The bulk of retirement account tax breaks benefit the affluent, Andrew Biggs and Alicia Munnell argued in a recent paper.


What's stopping the non affluent from taking advantage of these tax breaks?
Posted by windriverwonders
Member since Jan 2022
37 posts
Posted on 2/6/24 at 1:18 pm to
Serious? It's just a WAG but they probably would if they could afford to and did not have to spend 100% of their income on day to day expenses etc. 401 contributions are by definition excess income above and beyond what an individual or family needs.
Posted by LNCHBOX
70448
Member since Jun 2009
84034 posts
Posted on 2/6/24 at 1:25 pm to
quote:

Serious?


Very much so.

quote:

It's just a WAG but they probably would if they could afford to and did not have to spend 100% of their income on day to day expenses etc
No one "has" to spend 100% of their income on living expenses. That's a choice.

And if you have such little income that you must rely on government assistance just to make it, then you are getting to take advantage of something I don't. Why aren't we complaining about that injustice as well?
Posted by msutiger
Shreveport
Member since Jul 2008
69571 posts
Posted on 2/6/24 at 1:37 pm to
I’m such a sucker for funding my 401K

there is basically a zero percent chance politicians don’t raid it to fund more entitlement programs at some point in the next 20 years
This post was edited on 2/6/24 at 1:37 pm
Posted by WhiskeyThrottle
Weatherford Tx
Member since Nov 2017
5281 posts
Posted on 2/6/24 at 1:47 pm to
I'm opposed to any penalty I have to pay in order to compensate for the government's mismanagement of their mandatory retirement fund.

If they would keep their greedy hands out of SS for reasons other than what it was designed for, the fund would be more sustainable and retirement ages lower. They made the mess, and their retirement funds should be sacked before anyone touches the public's private retirement fund.
Posted by Weekend Warrior79
Member since Aug 2014
16218 posts
Posted on 2/6/24 at 1:58 pm to
I feel like this article misses a few major points:
-The assumptions start off as extremely flawed as they make the assumption that 100% of the increase in income taxes would go straight to SS

-Under their scenarios, would the employer match now become taxable income in the year the employer puts the money into the 401(k)?

-What would be the impact on SS if Congress stopped using the earnings as a nest egg to balance other budgets?

-Before raiding 401(k) benefits to fund SS, can we start by cutting back on sending money all over the world to fund all of these congressional money laundering schemes, I mean aid packages for other countries.
Posted by Powerman
Member since Jan 2004
162176 posts
Posted on 2/6/24 at 1:59 pm to
quote:


What's stopping the non affluent from taking advantage of these tax breaks?

Shouldn't be that difficult to run the math on that

Of course it depends on how you define affluence
Posted by LNCHBOX
70448
Member since Jun 2009
84034 posts
Posted on 2/6/24 at 2:02 pm to
quote:

Shouldn't be that difficult to run the math on that


Run the math on what? Are you saying you can only save for retirement in a tax advantaged account if you make a certain amount of money?
Posted by JohnnyKilroy
Cajun Navy Vice Admiral
Member since Oct 2012
35271 posts
Posted on 2/6/24 at 2:10 pm to
quote:

there is basically a zero percent chance politicians don’t raid it to fund more entitlement programs at some point in the next 20 years


Why would they raid your 401(k)? You pay higher tax rates on withdrawal than practically any other investment option.

If anything they would raid ROTH accounts or raise capital gains taxes.




Posted by OceanMan
Member since Mar 2010
19953 posts
Posted on 2/6/24 at 3:31 pm to
It’s interesting that many rational people would consider doing the opposite. Imagine if we ALL had 15% of our income sitting in an account that we can check the balance of and actually plan retirement.

quote:

The bulk of retirement account tax breaks benefit the affluent, Andrew Biggs and Alicia Munnell argued in a recent paper.


IRAs have pretty low contribution limits. 401ks and SEPs can be pretty attractive for high income very small businesses owners but with 401ks the limit is relatively low and other employees need to not be discriminated against. And if you take this away, you take the deduction away. Sure SS tax is deductible but is already higher than most of the matches that are available. The truly affluent will just keep their money.

quote:

Research shows that tax-preferred retirement accounts don't boost overall household savings, they write.


Ok, so if they don’t boost savings, then the contributions must be insignificant, right?
Posted by slackster
Houston
Member since Mar 2009
84579 posts
Posted on 2/6/24 at 5:19 pm to
quote:

What's stopping the non affluent from taking advantage of these tax breaks?


To be fair, pre tax 401ks are more and more attractive the higher your income is.

However, the solution is asinine. You still pay SS taxes on your 401k contributions.
Posted by UltimaParadox
Huntsville
Member since Nov 2008
40813 posts
Posted on 2/6/24 at 7:09 pm to
quote:

Research shows that tax-preferred retirement accounts don't boost overall household savings, they write.


Average idiot does not save or plan for an emergency fund... Let alone retirement.

Nothing will fix this, that's just people
Posted by Wraytex
San Antonio - Gonzales
Member since Jun 2020
1977 posts
Posted on 2/6/24 at 7:57 pm to
You don’t give an inch to politicians of either party. How many fixes did it take to break SS?
This would simply be another fix that the next round of politicians take advantage of so anchor babies get free college or whatever pity party they can dream up.
Posted by jfw3535
South of Bunkie
Member since Mar 2008
4632 posts
Posted on 2/6/24 at 8:35 pm to
quote:

there is basically a zero percent chance politicians don’t raid it to fund more entitlement programs at some point in the next 20 years

Yep. That's always been my argument against roths. Yes, it's supposed to grow tax free, but I could see the dems changing the laws before I retire and hitting me with a double tax on those funds.
Posted by Ace Midnight
Between sanity and madness
Member since Dec 2006
89445 posts
Posted on 2/6/24 at 9:14 pm to
quote:

Yes, it's supposed to grow tax free, but I could see the dems changing the laws before I retire and hitting me with a double tax on those funds.



I think they can make it go away, but I can't see how they can't grandfather what's already in there.

The tax deferred is the unknown variable for me. Yes, you avoid (with certainty) taxation now, but they can certainly amp up your rates down the line and tax your grown (and inflated) future dollar with grown (and inflated) future taxes.

But once it is in ROTH, I just don't see how they can un-ROTH it. They would have to make you whole on the taxes you already paid on it, at the very least.

(ETA: I just figured out how we can get to a consumption tax - everybody just go all ROTH right now. That would be their trick - "Okay, no more income tax - national consumption tax!" )
This post was edited on 2/6/24 at 9:16 pm
Posted by SquatchDawg
Cohutta Wilderness
Member since Sep 2012
14125 posts
Posted on 2/6/24 at 9:17 pm to
quote:

To be fair, pre tax 401ks are more and more attractive the higher your income is.


Are they? With the current maxes it really doesn’t move the needle much at all if you have any normal deductions. I quit contributing to a pretax 401k years ago and put everything in a work sponsored Roth under the theory that taxes are going to be much higher in 10 years when I can finally touch the money.
Posted by TJG210
New Orleans
Member since Aug 2006
28332 posts
Posted on 2/6/24 at 10:08 pm to
quote:

Are they? With the current maxes it really doesn’t move the needle much at all if you have any normal deductions.


It depends on your situation, I own a business and using a 401k Will save me a significant chunk….albeit I’ll have to put a significant chunk in to realize that.
This post was edited on 2/7/24 at 7:33 am
Posted by LSUcam7
FL
Member since Sep 2016
7891 posts
Posted on 2/6/24 at 10:49 pm to
quote:

basically a zero percent chance politicians don’t raid it


Have any proof or historical evidence to back this claim?
Posted by Y.A. Tittle
Member since Sep 2003
101156 posts
Posted on 2/6/24 at 10:50 pm to
quote:

Research shows that tax-preferred retirement accounts don't boost overall household savings, they write.


I don’t understand this sentence.
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