Monday, October 27, 2008

401k Tax Break Under Microscope

Pretend you're a government with an out-of-control spending agenda. Your debt just splashed past the $10 trillion mark; your budget deficit is threatening to enter the trillion-dollar zone in the upcoming year. And there's nary of glimmer of economic hope on the horizon.

What do you do?

Ensure that you can borrow more going forward.

Who do you borrow from?

A nation of involuntary lenders — lenders created by legislation.

What about the interest you'll pay?

No problem. Being able to determine the interest rate yourself means you'll pay low, low rates indefinately!

Investment News: House Considers Ending 401k Tax Breaks

That linked article isn't the first I've heard of this, unfortunately. The idea is to kill off the tax advantages of the 401k and replace it with:

Under Ms. Ghilarducci's plan, all workers would receive a $600 annual inflation-adjusted subsidy from the U.S. government but would be required to invest 5% of their pay into a guaranteed retirement account administered by the Social Security Administration. The money in turn would be invested in special government bonds that would pay 3% a year, adjusted for inflation.

The moral of this story? Never underestimate the ability of a government to ensure its ability to grab cash from a captive audience.

"I want to stop the federal subsidy of 401(k)s," Ms. Ghilarducci said in an interview. "401(k)s can continue to exist, but they won't have the benefit of the subsidy of the tax break."

I don't know about you readers, but the fact that congress-folks are even contemplating this makes me want to drive my fist into a wall.

But we shouldn't be surprised, should we?

This country's jaunt toward all-out socialism was already well underway.

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— Posted by Michael @ 9:07 AM


If tax breaks for 401(k) plans were eliminated, lots of mutual funds would probably close or be consolidated. Many plan administrators and advisers would be out of work. For these reasons, there will major $$$ lobbying against it. A more likely target is the tax free capital gain on home sales. That will probably be means tested.


You are right... we are on a socialist landslide!

Today I had a customer call me and tell me that the "recession" was causing her to be late on her insurance payment. Mind you, this poor woman calls monthly unable to pay her bills.

Obama will encourage this "no personal responsibility" mindset.

God help us!

Thanks for your column...always a good read:)

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