It seems there may be more than a just a little bit of truth to our recent musings that the U.S. government may try to come for your retirement savings. Consider the motivation in place for our representatives to act: China is backing off of the dollar and Washington, in desperate need of cash, is running out of places to export our inflation to. Something like $5 trillion sits in the retirement accounts of Americans. As this unsustainable system nears collapse, how could they not look for more ways to stave off bankruptcy and get at that money?
Given this context, now comes this: Obama’s latest proposed budget includes an opening volley against the tax advantages of 401(k) plans.
Granted, this is only a proposed budget. Both chambers of Congress haven’t agreed on a real “budget” in years, so this one has a chance of passing that lies somewhere between slim and none.
Still, these proposed changes to the 401(k) tax rules could be taken up separately at a later date, so we must take them seriously.
Here’s the double-whammy that Obama has proposed: Reduced tax benefits and increased red tape. Just what our retirement landscape needs, right??!?
First, retirement plan contributions for top income earners would be tax deductible only at the lower 28% rate. Everything above that would be fully taxed before going in. Then, of course, that portion is double-taxed when it comes out. In addition, Obama wants an overall cap on all tax-advantaged retirement accounts that works out to $3.4 million. Yep, that’s all you could save and then you’re maxed out – and once we get on this slippery slope, who knows if that amount would creep lower and lower as time goes on. It is estimated these changes could bring $1 billion more to the government in tax revenue every year.
It is so much easier for Washington to find ways to get their hands on your money before it even makes it to your retirement account. This is a logical place for them to start. Of course, it’s all cloaked in the rhetoric of fairness and populism, but the real reasons are pretty obvious. America does not have a problem of too many people saving too much for retirement. And you don’t get those people with lower income to save more by punishing high-income earners. It is not a zero sum game.
Now several analysts are pointing out that many small business owners are in the higher income bracket that would be affected. Being small businesses with relatively limited means, dealing with the red tape and expense of sponsoring a 401(k) program for just a few employees is proportionally a much larger burden than for a well-staffed Fortune 500 company. Small businesses are the backbone of the economy, and if you add to the burden and withdraw some benefit, several may opt to discontinue their program altogether. So the pain from this could trickle down to the working class, who would have to shift their retirement savings to standard IRAs and the increased limitations that come with them: a maximum contribution of $5,500 per year instead of the 401(k) limit of $17,500.
Please be aware of these proposals and how they could affect you. Nothing has been decided yet, so you can always let your representatives hear from you on this.
In the meantime, don’t forget that you can still shift an eligible 401(k) or an IRA into a gold-backed IRA with Birch Gold Group. It is a completely lateral move, so in most cases there are no tax implications or penalties. Call us today at (800) 355-2116 to get more information, or simply click here to get the Birch Gold™ Investment Kit. It is never too early to start safeguarding your future by protecting your assets.