4 ms·

I am not a financial professional so hopefully someone else will chime in, but... My understanding is that your 401k can't be pilfered directly by the governme

by cujo 10y ago

I am not a financial professional so hopefully someone else will chime in, but... My understanding is that your 401k can't be pilfered directly by the government since they don't hold it. This is different from pensions where the company actually held the pension money and changing the terms led them to actually take it. The government CAN get at your 401k money using the same technique you are calculating against with respect to ROTH accounts. That is, since it is tax deferred, you're essentially betting that you'll be in a lower or at least equivalent tax bracket compared to current when it comes time to pull that money out. It's conceivable that they just up the tax rates enough that when it comes time to pull your money, the government can get at as much of your funds as it likes based on taxes alone. I'm sure there are other risks involved, but that seems like the most obvious.

logicalmind 10y ago
Since the 401(k) laws are federal laws within the IRS, couldn't that law be changed at any time by the federal government? Based on history, it seems naive to think that trillions of dollars sitting in retirement accounts would not be eventually re-purposed.
- ceejayoz 10y ago
  They have the theoretical power, but how do you think "we're taking your retirement accounts" is going to play politically? It was possible with pensions because they often weren't privately held accounts, and people didn't have individual balances they could consult.
  - logicalmind 10y ago
    How is that any different from social security though? Social security taxes are being taken out of every american's paycheck as we speak. Yet, anyone under the age of 40 or so has no illusions that social security will be solvent by their retirement age.
    - ceejayoz 10y ago
      It's possible because you don't have a Social Security balance. There's no statement that says "you personally have $250k in your account" like a 401(k) or IRA does. So, no one notices when Congress goes fishing in it. Frankly, I (34) do think it'll be solvent by my retirement. It'll still have funds to pay about 3/4 of current benefits without changes to the system. As it gets closer, political change will likely get easier as Congress doesn't want lose their cushy jobs en masse.
      - snuxoll 10y ago
        I actually get a letter from the government every year showing how much money I have put into the social security trust, and how much I can expect when I retire if I keep putting in the same amount as I did last year. You can view it online anytime here, actually: https://www.ssa.gov/myaccount/ https://www.ssa.gov/myaccount/ Ultimately since it's a huge trust fund of course there's no "You have X money in the bank", but it does say I should expect "X money per month" when I retire. It'd be nice if it showed details of the trust fund overall.
        ceejayoz 10y ago
        I get those too. Note that nowhere does it claim the amount you paid in is your balance. Your benefits won't go up if you retire at 100 years old. Your benefits won't run out if you live to 500. It's not like a 401(k) or IRA, where you have $x dollars in it that's your money and have to budget your withdrawals. They won't update the "amount you will get" to reflect Congress dipping into the fund. The statements operate on the "if everything continues to go well" basis, and so what Congress does isn't reflected on them. No one gets their next statement and asks "hey, where'd my money go?" That's why it's politically safe to raid, at least in the short term.
        loeg 10y ago
        > They won't update the "amount you will get" to reflect Congress dipping into the fund. The statements operate on the "if everything continues to go well" basis, and so what Congress does isn't reflected on them. Right. They do say, "Your estimated benefits are based on current law. The law governing benefit amounts may change. Congress has made changes to the law in the past and can do so at any time." At least.
  - rsync 10y ago
    "They have the theoretical power, but how do you think "we're taking your retirement accounts" is going to play politically?" How did "we're showing up to physically seize all of your gold" play out ? https://en.wikipedia.org/wiki/Executive_Order_6102 https://en.wikipedia.org/wiki/Executive_Order_6102
    - ceejayoz 10y ago
      "We're exchanging something worth money for money" plays a little differently than "we're taking some of your money".
- bdavisx 10y ago
  Changing the law would mainly affect older people. And older people vote in very high percentages. Politicians are very, very careful about doing things that will make older voters angry.
gnoway 10y ago
This doesn't make sense to me. The entire point of Roth is that you pay tax up front, and then the retirement proceeds are tax-free (assuming you withdraw after proper age, etc.). To then go and tax these withdrawals is basically neutering the entire Roth deal - I think there would be some pretty major political backlash on that.
- brewdad 10y ago
  What is the percentage of Americans with assets in a Roth IRA compared to the number of Americans who would rather see someone else pay for a tax increase? Politically, altering the deal on Roth IRAs could work out quite well.
  - gnoway 10y ago
    I don't know the answer to that, or about Roth 401(k) plans, but I think there are a lot of people overall with one or the other. I think that threatening either would have an effect similar to threats on Social Security, without the justification of it being insolvent. IMO, at worst, Roth plans could get phased out for new contributions with existing deposits and the tax-free withdrawals honored.
double0jimb0 10y ago
Roth 401k and Roth IRA are taxed now (it is post-tax income you contribute). Traditional 401k is taxed when withdrawn. I believe you have it backwards.

by cujo 10y ago

logicalmind 10y ago

Since the 401(k) laws are federal laws within the IRS, couldn't that law be changed at any time by the federal government? Based on history, it seems naive to think that trillions of dollars sitting in retirement accounts would not be eventually re-purposed.

ceejayoz 10y ago
They have the theoretical power, but how do you think "we're taking your retirement accounts" is going to play politically? It was possible with pensions because they often weren't privately held accounts, and people didn't have individual balances they could consult.
- logicalmind 10y ago
  How is that any different from social security though? Social security taxes are being taken out of every american's paycheck as we speak. Yet, anyone under the age of 40 or so has no illusions that social security will be solvent by their retirement age.
  - ceejayoz 10y ago
    It's possible because you don't have a Social Security balance. There's no statement that says "you personally have $250k in your account" like a 401(k) or IRA does. So, no one notices when Congress goes fishing in it. Frankly, I (34) do think it'll be solvent by my retirement. It'll still have funds to pay about 3/4 of current benefits without changes to the system. As it gets closer, political change will likely get easier as Congress doesn't want lose their cushy jobs en masse.
    - snuxoll 10y ago
      I actually get a letter from the government every year showing how much money I have put into the social security trust, and how much I can expect when I retire if I keep putting in the same amount as I did last year. You can view it online anytime here, actually: https://www.ssa.gov/myaccount/ https://www.ssa.gov/myaccount/ Ultimately since it's a huge trust fund of course there's no "You have X money in the bank", but it does say I should expect "X money per month" when I retire. It'd be nice if it showed details of the trust fund overall.
      - ceejayoz 10y ago
        I get those too. Note that nowhere does it claim the amount you paid in is your balance. Your benefits won't go up if you retire at 100 years old. Your benefits won't run out if you live to 500. It's not like a 401(k) or IRA, where you have $x dollars in it that's your money and have to budget your withdrawals. They won't update the "amount you will get" to reflect Congress dipping into the fund. The statements operate on the "if everything continues to go well" basis, and so what Congress does isn't reflected on them. No one gets their next statement and asks "hey, where'd my money go?" That's why it's politically safe to raid, at least in the short term.
        loeg 10y ago
        > They won't update the "amount you will get" to reflect Congress dipping into the fund. The statements operate on the "if everything continues to go well" basis, and so what Congress does isn't reflected on them. Right. They do say, "Your estimated benefits are based on current law. The law governing benefit amounts may change. Congress has made changes to the law in the past and can do so at any time." At least.
- rsync 10y ago
  "They have the theoretical power, but how do you think "we're taking your retirement accounts" is going to play politically?" How did "we're showing up to physically seize all of your gold" play out ? https://en.wikipedia.org/wiki/Executive_Order_6102 https://en.wikipedia.org/wiki/Executive_Order_6102
  - ceejayoz 10y ago
    "We're exchanging something worth money for money" plays a little differently than "we're taking some of your money".
bdavisx 10y ago
Changing the law would mainly affect older people. And older people vote in very high percentages. Politicians are very, very careful about doing things that will make older voters angry.

gnoway 10y ago

This doesn't make sense to me. The entire point of Roth is that you pay tax up front, and then the retirement proceeds are tax-free (assuming you withdraw after proper age, etc.). To then go and tax these withdrawals is basically neutering the entire Roth deal - I think there would be some pretty major political backlash on that.

brewdad 10y ago
What is the percentage of Americans with assets in a Roth IRA compared to the number of Americans who would rather see someone else pay for a tax increase? Politically, altering the deal on Roth IRAs could work out quite well.
- gnoway 10y ago
  I don't know the answer to that, or about Roth 401(k) plans, but I think there are a lot of people overall with one or the other. I think that threatening either would have an effect similar to threats on Social Security, without the justification of it being insolvent. IMO, at worst, Roth plans could get phased out for new contributions with existing deposits and the tax-free withdrawals honored.

double0jimb0 10y ago

Roth 401k and Roth IRA are taxed now (it is post-tax income you contribute). Traditional 401k is taxed when withdrawn. I believe you have it backwards.