As part of tax reform Congress is looking at limiting deductions for contributions to 401K plans
When it comes to IRA’s and 401K’s, these programs are a catch-22.¬† The positive side of course is that contributions to each provide individuals a way to cut down on their tax obligations in the short term while also investing for their retirement decades down the road.¬† However there is also the dirty little secret few ever realize when they simply give thousands of dollars to Wall Street, and that is that banks and brokers can have access to tens of trillions of dollars to leverage and speculate, where they often reap massive profits while offering to you in return only a pittance in proceeds.
There is approximately $12-19 trillion held by Americans in retirement accounts like IRA’s and 401k’s, and this is money that is often tax deferred and outside the general economy.¬† And with President Trump and Congress desperate to pass some form of tax reform before heading into the 2018 mid-term elections, one of the areas now on the docket to be slashed in favor of lowering income tax obligations is that of the amount one can contribute to their 401k each year which is tax deferred.
Currently, you can contribute up to $5,500 to your IRA ($6,500 if you‚Äôre over age 50)¬†and $18,000 to your 401(k) retirement account. But if Congress moves forward on this plan, the limits could be set at $2,400.
The war on savers is becoming very real!
Congress is considering this retirement account limit as details are being hashed out for the new tax bill.
Since there are some big tax cuts being proposed, Congress is looking for ways to offset the lost revenue from these cuts. It seems that your retirement savings is one of the ways they hope to offset the lost revenue.
You see, when you contribute to a traditional IRA or a 401(k) retirement account, your contribution is tax deductible. So if you put $5,500 into an IRA and another $18,000 into a 401(k) account, you won‚Äôt be taxed on that $23,500 in income that you earned.
These deductions eat away at the tax revenue the government could be receiving from that income. So by capping how much you can contribute to those accounts, the government is putting more of your income square in the crosshairs of the IRS. ‚Äď¬†Daily Reckoning
Ironically over the past two decades, no matter how much you invest in the markets over the course of your working life you will barely receive any real returns since inflation has ramped up immensely due to both fiscal and monetary policies enacted by the Fed and Congress.
Lastly, most Americans also don’t realize that the 401K program was created by the government, and thus the government can not only change the rules any time they see fit, but there is also a little ‘fine print’ addendum in all 401K contracts that says they actually own them, and you are simply a beneficiary at their leisure.
You may be surprised to learn this, but your 401(k) does not even technically belong to you. Read the fine print and you will find “FBO” (For Benefit Of).¬†The tax code makes it technically owned by the government, but provided for your benefit.
Judging from world history, 401(k)s could be in great jeopardy. Other countries have raided private retirement plans to fund the government. Argentina did it in 2008, Hungary did it in 2010 and Ireland in 2011.¬†Similar pension raids occurred in Poland and France.
Could it happen in America? Well, during the last recession, Congress invited an expert to give testimony on¬†confiscating 401(k)s and turning them into a public retirement plan¬†like Social Security.¬†It only takes one economic crisis before you retire for possible rule changes or confiscation of your 401(k). –¬†¬†Entrepreneur
Is it any wonder why it has been so difficult for the government to pass tax reform?¬† Anything they might do to improve your life will be a serious loss of revenue to their political machines.
Kenneth Schortgen Jr¬†is¬†a writer for¬†The Daily Economist,¬†Secretsofthefed.com,¬†Roguemoney.net, and¬†Viral Liberty, and hosts¬†the popular¬†youtube podcast¬†on Mondays, Wednesdays and Fridays.¬†Ken can also¬†be heard Wednesday afternoons giving an weekly economic report on the¬†Angel Clark radio show.