Wall Street Journal Says Get Ready! Congress is Coming After Your 401(k)
The members of Congress enjoy one of the best retirement plans in America. But that doesn’t stop them from coming after yours! So says this recent article from the pages of the Wall Street Journal.
Writing in the Journal, financial columnist Jason Zweig warns that, as part of its tax reform deliberations, Congressional negotiators have cast their hungry eyes on the 401(k) accounts that form a vital part of the retirement plans for a vast number of working Americans. Ironically, says Zweig, our elected representatives aren’t even considering changes to their own retirement plans which are not only extremely generous but remarkably safe. “The lucky participants in one of the best retirement plans around are coming after yours with a meat cleaver,” Zweig writes – so it might be time for us working Americans to grab our pitchforks and defend our retirement savings.
Here’s the problem. As Congress and the Trump administration debate the fine points of tax reform, they’re looking for revenue wherever they can reasonably find it. Right now, as most of us know, the contributions we make to an employee-sponsored 401(k) plan (or a similar 403(b) if you work for a non-profit organization) are taken out of your paycheck pre-tax, giving you a healthy incentive to set aside retirement savings in an account that is tax-deferred. You won’t pay taxes on the contributions you make or on the interest earned until you begin making withdrawals, usually when you retire. (This assumes you are not saving money in a Roth IRA in which contributions have already been taxed and the withdrawals can be made tax-free.)
So what’s the danger? Here’s how the Wall Street Journal’s Jason Zweig describes it. “At a meeting with members of the Senate Banking Committee earlier (in April),” says Zweig, “Gary Cohn, the director of the White House National Economic Council, discussed ideas that would remove pre-tax benefits from retirement accounts including 401(k)s and shift them to after-tax benefits, according to people familiar with the discussions. It wasn’t clear how seriously the administration is evaluating any specific proposal, these people said.”
Apparently Congress is tired of waiting for you and me to pay income taxes on our retirement savings. For that reason they want to tax us before those funds go into our retirement accounts. And here’s the real eye-opener: “Taxing retirement-plan contributions Roth-style,” Zweig writes, “would generate roughly $1.5 trillion over the next decade the way the government reckons the numbers…So giant a pot of honey may be hard for Congress not to raid.”
Besides giving Uncle Sam a windfall at our expense, the great danger in this plan is that it removes one of the real incentives for most of us to save for retirement. “It’s hard for most people to save for a goal that glimmers faintly decades in the future,” says the Wall Street Journal. “Take away the tax incentive, and many savers might no longer see the point of even trying.”
One of the financial experts quoted in the article describes a solid financial plan for retirement as a four-legged stool, comprised of a pension, a 401(k), Social Security and supplemental savings. But only a relatively tiny fraction of workers today earn a pension. (By the way, that’s something else Congress doesn’t have to worry about: in 2015 the average pension earned by a retired member of Congress was over $41,000, and a Senator or representative with 30 years of service qualifies for well over $105,000 in annual pension.) If you remove the incentive for people to save in a tax-deferred account, fewer and fewer will approach retirement with anywhere near enough money set aside. The retirement crisis is only going to get worse.
So what’s the answer, according to the Wall Street Journal analysis? Mandatory savings is one idea that has been floated, requiring people to save for their future. Leaving the present system alone is another option. But “at a bare minimum,” says Jason Zweig, “if Congress is going to hack away some of the tax advantages of private retirement plans, it should make matching cuts to the cushy federal system.” It only seems fair, after all. And if you are the protesting kind, Zweig has this advice: “If you have a pitchfork in your garage, keep it handy. Your 401(k) might need defending.”
As interesting as this article is, we here at AgingOptions believe it makes a mistake common to many stories about retirement: it focuses entirely on finances. There’s no doubt that having a good financial plan in place is essential to your retirement security, but it is only one piece of a much larger puzzle. Protecting your assets is all well and good, but have you considered how to cover yourself against medical emergencies, both in the short term and long term? Few things will drain your bank account more quickly that a long term care crisis. What about housing? Simply assuming you’ll be able to stay put in your home indefinitely is extremely naïve, even dangerous. There are also legal safeguards you’ll want to put in place to protect your assets and to make sure you won’t become a burden to your loved ones. And speaking of your loved ones, you need to make certain your family knows your wishes as you age, and will support the choices you make.
All these elements – financial security, medical coverage, housing choices, legal protection and family communication – together make up an AgingOptions LifePlan, the most comprehensive retirement plan we know of. If this sounds like a unique and powerful approach to planning for your retirement future, it is. Why not take just a few hours and find out more, without any obligation? Plan now to attend a free LifePlanning Seminar at a location that’s convenient for you. We assure you, you’ll be very glad you did.
For dates, times and online registration, click here – or, if you prefer, call our office for assistance during the week. Discover how to enjoy a secure and rewarding retirement with an AgingOptions LifePlan.
(originally reported at https://blogs.wsj.com)