Concerned

[buildmybudget]

It would definitely be political assassination to try and change the 401k rules at the moment considering everything else that is going on (healthcare!). I could see the tax rates increasing but confiscation seems a bit unrealistic---probably a scare tactic as aforementioned.

[maat55]

No, it's like saying that we're going to tax Roth IRAs. I don't think it's a given that it will happen. Actually if you read the thread Maat, I believe you are in the minority.

The taxing of 401ks will take a lot of time. There are easier fixes to be had, including raising the age, means based, and raising the taxes on it.

Thus out of all scenarios yours is the least likely.

Under normal recessions, I agree that government will stay in its bounderies. I'm wondering what will happen in a major depression with a social liberal in office. Roosvelt changed america forever, who knows what might happen down the road when boomers needs are not met.

- "Democrat" 401K Confiscation Proposal is "Republican" Mandatory Savings Plan

Unpacking The 401(k) Confiscation Rumor - Contrarian Stock Market Investing News - Featuring Bargain Stocks

House discusses 401k/IRA confiscation | The Economic Populist

This is not a new theory.

[cptacek]

I'm more worried about Roth IRAs, since there is no tax on the growth and the beneficiary doesn't have to pay estate taxes on it. I've ready Ed Slott's books, and he shows ways to effectively pass on millions without it being taxed. I think trying to siphon off some of the estate would be less suicidal, politically, than to try to tax 401ks.

Of course, there is always increasing the tax rates, or shrinking the tax brackets.

But the real stinker I think is coming is a VAT. You have already paid income taxes on all your income, you have paid capital gains taxes, etc., etc., and then you'll have to pay a sales tax for everything you buy. That would be double taxation, but it has already been floated.

[PetMom]

That is great that the IOU system has held out for CA and I sure hope it continues for all those owed money.

The 2/1 retirement system is a reason a lot of people get city jobs with cities that do this (not all of them do this payout).

They put in double the amount of what you have put into your retirement account.

But for the changes proposed to end this the people get to keep their current reitrement built up with that original 2/1 matchup and any amount put in retirement after 2/1 is absolved will be matched 1/1.

And Joan of the Arch - you got the math right on that. In fact when I first heard of this I did not think it was not too much of a rate increase - but and even on that link you provided, there are some examples are of large amounts of $330.00 and $460.00. The average residential water bill has run in my area (and I am not in Crandall) $80.00 - $90.00. They have had several rate increases and this latest one of 125% may have put the water bill over the top to these amounts.

And these folks are already paying deregulated electricity rates - which do tend to average at least $250.00 for the smallest home and higher in summer. So that is about $500.00 - $700.00 a month for water and utilities for the Crandall people. You can even have a paid in full home and this would deplete a carefully planned budget. But wait then you add in property taxes - a couple of hundred dollars there per month and you need property ins. Whatever happened to a basic paid for home to secure people into retirement? The govt. needing money on all levels. A retirement buget plan these people in Crandall made out probably never included such a staggering amount for basic living expenses.

I do think this reflects what govt. can do. Who would have thought 'taxing' people through their water bill that does not reflect their water usage?

Quite clever actually - a sure deal. If residents do not pay their water bill - their water gets turned off - that is what power the govt (even local) has over what they tell you to pay or do without so they can have their money.

Someone mentioned VAT - I have not studied this but if it can be sneaked into taxing food and other basic living costs that would be quite profitable.

And how about that wonderfully vague AMT.

The govt. on all levels will get their money when they really need it.

I think Maat55 has a valid point.

The solutions? Having several diversified retirement plans - I do not study retirement plans very much - always thought one excellent plan and being able to budget strictly would cut it.

This might be why those people get all of those gold coins and a cabin in the woods with solar panels and their own water well and raise their own food.

[am_vanquish]

Some cities are considering or are already doing away with the 2/1 city workers' retirement benefits - making them 1/1 - no one ever thought that could happen or even be considered.

Many government plans (especially local/city/county plans) are a bit too generous already. Combined with the fact that they're not subject to the same funding requirements/regulations of private plans, it's no surprise that these plans are being trimmed (just be glad they're not being frozen altogether).

To be honest, I'm glad they're cutting benefits. Either they cut benefits for those employees now or my taxes get rasised later on to pay for the more generous benefits. I'd be happy if we did the same thing to a few more entitelment programs.

[PetMom]

Am Vanquish

Good point and perhaps Crandall is having its water rates raised to pay for some cushy reitrements - that has not been mentioned. But some city workers tend to live in the city they work for - especially the higher up positions.

I am referring to my area in Texas - I don't know what is going on in CA but I am sure many cities are restructuring this.

Many private companies have done away with matching the funds in 401ks.
Legacy costs as they are called are doing in some companies. Pensions are not so secure as once thought.

Many who planned their retirement and have are halfway there will have to restructure their retirement plans or supplement them on their own which makes one wonder if having multiple retirement accounts/savings is the way to go.

[LivingAlmostLarge]

I think Petmom they need to trim state/government benefits. Sorry but it's gone in the private sector, why should the public sector be so generous? Civil servant reform.

And I'm pointing out that in CA, they've done IOUs before. Not that it's good, but it was hardly surprising. You asked who'd have thunk? EVERYONE in CA I know was expecting this, after all it's just a repeat of the 1990s.

No way maat. How long do you think it will take to do the other options I've proposed and others like DS and MM have mentioned? How long until you see some deficit cut by those changes?

Honestly, I think people like you are seriously living with paranoia. The basic changes haven't even happened yet. They will, but until then, how do you propose taxing 401ks?

Taxing them going forward? Maybe.

But right now? Not at all feasible. You have a CPA telling you that.

And making suggestions for what can be done easily for SS.

So explain to me, why should they tax 401ks like your suggesting over the easier implemented and calculated solution?

In those articles, they also suggested instead of taking 401ks, they not allow high wage earners to participate...Something more acceptable than taking the 401k.

And part of the proposal in the Unpacking the 401k is forcing people to save 5%, but NOT taking the current 401k balances. Instead just forcing them to participate in a government retirement plan. Sounds to me it's like just increasing SS, except it's individualized. Actually the 5% enforced savings is a "republican" idea, not democratic. Huh, funny that's bigger government instead of smaller.

Answer desk: A 401(k) urban legend - Answer desk- msnbc.com

Here's the myth being dispelled. Also it happened right before the election as a Republican "SCARE TACTIC."

Funny, it's not even mentioned now.

I think the problem is a lot of Americans are afraid. Afraid of government, afraid of everything. They only live in fear instead of the moment. They believe everything the read, instead of logically and rationally listening to discussions and determining their own opinions.

[PetMom]

Thanks for the link.

I read a bunch of his aritcles and he is covering some of the topics on this thread.

John W. Schoen does quell this urban legend but he does not think too highly of 401ks period.

He also mentions the CA govt. printing up their own 'funny money' which puts state workers in a bind of paying their taxes - because this money is questionable to be put in circulation usage - in 1992 the banks honored these and now banks are not doing so great.

He also gives advice to someone over 65 about how to go about starting their own business because they need the money and employers are sure not hiring from this group.

Some of these other articles have me wondering about the situation for people retiring with 401k's or pensions.

And with how financially unstable govts. can sustain thier economics without it affecting their consituents (of which reitrees are always the most vulnerable).

Yes, I agree with you we need to be rational in our believing what we read or hear.

Lately, though, just knowing people who are going through some of this has been enough for me.

I will ask then what are people doing to rationally plan for contigencies that can happen in retirement brought about by govt.

Are we going to need multiple retirement accts. that we set up to supplement what might happen, could happen, has happened.

Many are trying to work hard now to avoid the how to advice of job hunting tips for the over 65 crowd.

Interesting thread - but hope some of the retirement planning buffs on this forum can give us some tips about some of this stuff.

A separate investment/savings account to booster our retirement that may not be such a good nest egg after all.

Or do we just need a mountain of gold coins and that cabin in the woods.

[amedvedovski]

I would not worry. I think the most probable scenario would be that the benefits will be cut when you are retired. So start saving now as much as possible.

I would not put all your money into real estate. Put just some percentage of it. Historically stocks produced very good returns.
See those two articles on the blog I found:
Shall I invest into stock market now?
I am in my early 20s, is it too early to start saving for retirement?

[maat55]

[QUOTE]

No way maat. How long do you think it will take to do the other options I've proposed and others like DS and MM have mentioned? How long until you see some deficit cut by those changes?

Again, I agree with you under normal circumstances. I'm only processing information from different sources. I respect Larry Burketts opinions, this has been discussed in Congress(though not proposed by any members), we have drastic future shortfalls in funding for SS and Medicare, we have an soaring federal deficit, we have rumblings as to the possible collapse of the dollar, private debt loads are high, We have record level losses in tax reciepts, we have a major trade deficit every year, this administration is proposing massive tax increases and further entitlment programs in the middle of an major recession.

These are not small issues. We have seen many unusual things in the last decade and questionable room for more in the coming decade. IMO, 401k confiscations could be a minor occurance in the scheme of things.

You pin this as Republican rhetoric from a partisan view. I have no loyalty to the republican party or the democrats due to they both are leading us down the wrong road.

Honestly, I think people like you are seriously living with paranoia. The basic changes haven't even happened yet. They will, but until then, how do you propose taxing 401ks?

Paranoia? Maybe. Forsite, possibly. You dismiss a lot of signs. I can see the government(under either party) seeing 401k's and IRA's as government tax dollars lent to us that can be confiscated if necessary. With the challenges we have in the future, who knows.

So explain to me, why should they tax 401ks like your suggesting over the easier implemented and calculated solution?

I believe they will do the things you suggest or others, before they would go to extremes, provided we do not have a serious event.

In those articles, they also suggested instead of taking 401ks, they not allow high wage earners to participate...Something more acceptable than taking the 401k.

And part of the proposal in the Unpacking the 401k is forcing people to save 5%, but NOT taking the current 401k balances. Instead just forcing them to participate in a government retirement plan. Sounds to me it's like just increasing SS, except it's individualized. Actually the 5% enforced savings is a "republican" idea, not democratic. Huh, funny that's bigger government instead of smaller.

The government should not be forcing anything. This information does prove that they are discussing options. Options usually mean changes.

Answer desk: A 401(k) urban legend - Answer desk- msnbc.com

Here's the myth being dispelled. Also it happened right before the election as a Republican "SCARE TACTIC."

You view things from an partisan angle, I do not.

I think the problem is a lot of Americans are afraid. Afraid of government, afraid of everything. They only live in fear instead of the moment. They believe everything the read, instead of logically and rationally listening to discussions and determining their own opinions.

Americans should be afraid, our government(both Parties) is out of control and nowhere near fically sound. I have no faith in its ability to return to being fiscally sound either. I believe we are going to see a very bad depression in the near future, I could be wrong, but there are plenty of reasons to believe it can happen.

[LivingAlmostLarge]

No, I believe there are other options that will occur first. You accused me 2 pages ago of being blase and laisse faire about taxes.

You still haven't retracted that. I specifically explained that I believe these are the steps in this order that it will occur.

The 401k taxing is the last tax on the list.

No argument you've made has shown why and how it would jump ahead of other logically explained and mentioned reasons.

So why should we even consider the 401k tax, when have you realized how much more in taxes you'll pay if they double SS? Or Medicare? Or if they cut benefits or increase the age of benefits?

Have you even looked at other taxations? It sounds like all you are focusing on is the 401k/IRA taxation.

Which if you read, both parties are scared of doing. The are even scared of banning high wage earners from contributing to 401ks.

So what does that mean? Likely people in Congress contribute to 401ks. They are also the people who make incomes above the $106 SS income cap. So what can they do to make more taxes but not seem that way.

Raise age of withdrawal. Cut benefits are the first steps.

Second steps increase taxes, specifically medicare and SS.

Third, raise income taxes.

Fourth, possibly implement a VAT.

Fifth, revamp the income tax and estate taxes.

Sixth, tax 401ks. Now why last? Lots of loopholes, lots of legalise to get through courts.

So why should I worry about taxing my 401k and IRA when there are other taxes that will likely come first?

You know I think it was 3 years ago they started raising the income cap on SS? It went from like $97k to $106k in 3 years or something? It's already being increased annually due to "inflation."

How much longer until there isn't a cap?

[ceejay74]

Yeah, I think if you really think they would confiscate 401(k)s completely, you shouldn't trust them to not raise property and other real estate taxes to the point that your "hard assets" would also be essentially confiscated, value-wise. In fact, I can't think of an asset that's safe under your scenario. Sorry.

[maat55]

LAL,

This thread was not about what options the government would use to fix SS and medicare before the nuclear option(so to speak).

I agree with you that they will go through a series of tax increases and benefit reductions or higher age qualifications before any nuclear option.

Income tax, VAT tax and others are a subject on their own, that I am vehemently against, but thats another thread.

I do not see how they can raise taxes enough, without major backlash and futher burden the economy, to fund the massive obligations ahead. IMO, we will see a decade or more of recession/depression with lower than expected tax reciepts to even keep up, let alone fund the future obligations. This is why I am concerned there will be 401k confiscations.

I'm not saying it will happen, I am saying it is possible.

[maat55]

Yeah, I think if you really think they would confiscate 401(k)s completely, you shouldn't trust them to not raise property and other real estate taxes to the point that your "hard assets" would also be essentially confiscated, value-wise. In fact, I can't think of an asset that's safe under your scenario. Sorry.

You are probably right. There are drastic measures like buying real gold and silver, which many are recommending for safety, but I don't buy into it being a good investment. I just look at diversification as an important option for the future.

[cptacek]

Here's an easy way to tax 401(k)s...or at least get some of them. Don't allow rollovers to IRAs, force them to go into Roth IRAs instead. Then the person doing the rolling either has to pay the taxes in that tax year or keep it in an old 401(k). Hell, let them split the tax liability into three years to make it easier to swallow. Allow the tax to paid from the roll over (just deduct it during processing or from the Roth IRA account), and people might not even consider it "paying taxes" since it didn't require them to scrounge around for money out of pocket to pay for it.