The loss of a popular tax deduction next year could reshape how millions of Americans save for retirement. Currently, people ages 50 and older are allowed to place “catch-up contributions” totaling up to $30,000 in their 401(k) accounts. But beginning in 2024, these funds will be funneled only into “after-tax” Roth accounts for people who made more than $145,000 the previous year. For more on this, CBS News was joined by Pratik Patel, head of family wealth strategies for integrated wealth management provider BMO Family Office.
#news #retirement #taxes
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Millions of Americans are set to lose a popular tax break on their 401(k) retirement plans under the Biden administration’s proposed tax policy changes. The potential elimination of this tax break has raised concerns among individuals who rely on their 401(k) savings for a secure retirement.
The 401(k) tax break is an essential feature of retirement planning in the United States. It allows employees to contribute a portion of their pre-tax earnings into a retirement savings plan, providing them with tax advantages while building their nest egg for the future. Currently, individuals can contribute up to $19,500 annually, with a catch-up contribution of $6,500 for those aged 50 and above. These contributions are deducted from the employee’s taxable income, reducing their overall tax burden.
However, the proposed changes seek to end the tax break as we know it. Under Biden’s plan, instead of receiving a tax deduction upfront, employees would receive a flat tax credit for their 401(k) contributions at a rate of 26%. This change would effectively reduce the tax benefits for higher-income earners who fall under higher tax brackets, while providing proportionately more benefits to lower-income earners.
The rationale behind this proposed change is to redistribute the tax benefits enjoyed by higher-income earners and address the growing wealth inequality in the country. Proponents argue that this adjustment would make the tax code fairer and bring greater equity to retirement savings. They believe that redistributing the benefits could help lower-income workers save more effectively for their retirement.
However, critics of the proposed changes warn that removing or reducing the popular 401(k) tax break would have adverse effects on retirement savings. They argue that the tax break is a significant incentive for individuals to actively contribute to their retirement plans, and any reduction in benefits could discourage participation. This, in turn, could lead to decreased retirement savings and a higher dependency on government welfare programs in old age.
Furthermore, opponents suggest that altering the tax break may discourage employers from offering 401(k) plans altogether. Many employers view the current tax break as an incentive to provide retirement plans for their employees. With a reduced benefit, some employers may find it less attractive to continue offering these plans, potentially limiting access to retirement savings accounts for millions of Americans.
It’s essential to note that the proposed changes are part of a broader package of tax reforms aimed at funding social and infrastructure programs. The ultimate impact on individual retirement savers will depend on various factors, such as income level, age, and the final form of the tax proposals as they work their way through Congress.
In conclusion, the potential elimination or reduction of the popular 401(k) tax break has sparked a nationwide debate on the future of retirement savings. While proponents argue that the proposed changes would address wealth inequality and encourage greater equity, critics warn of potential consequences such as lower retirement savings and reduced access to retirement plans. As the Biden administration’s tax proposals progress, it is crucial to consider the potential implications for individuals and the overall retirement landscape.
I have recently entered retirement, and I want to express that I found this video both informative and valuable for revisiting important concepts. I've come to recognize that these psychological principles are incredibly beneficial for individuals aiming to steer clear of errors, which is something I may not have fully appreciated when I first encountered them. This is likely one of the reasons why Warren Buffett emphasizes the significance of temperament in achieving success in investing.
Its technically good news depending on how you see it
That changes and Obama TAXED 30% in any investment on 2010
Tax break ?
Not making up to a million before retirement is unfulfilled retirement.!! I’m 50 and my husband 55 we are both retired with over $3 million in net worth and no debts. Currently living smart and frugal with our money. No longer putting blames on FED for our misfortunes. Saving and investing lifestyle in the stock market made it possible for us this early, even till now we earn weekly.!!.
So, in case that my salary becomes more than $145k p.A., I will have to put my 401(k) catch-up contribution (currently $7.5k p.A.) into a Roth account.
Which means paying taxes now instead when I withdraw it.
The only problem with this is that upon my death, if that money goes to an tax-excmpted party (like a museum of a food pantry), I already paid taxes on that money.
By 2030 taxes will go up 40%
My growth of 401k is 2.74% in the past year. In this environment does investing under a brokerage with a custodian outperform a 401k? should I seek a pro to grow my funds on brokerage acct or still hold? I have 5 years to retirement. Happy to discuss.
Cbdc will be the nail in the coffin
Total non-issue. It only impacts the catch-up contributions and it only impacts people making over 145k. And it forces the worker to have savings that grow tax free in a Roth with NO REQUIRED minimum distribution which gives the saver more flexibility in retirement. In all honesty, a lot of your 401k should have been going to this anyway, although not all 401ks have a Roth option.
Dodd-frank bill – your deposits are unsecured and can be taken by the banks if needed, called bail ins! Unsecured creditors, comical!
Physical gold vs a piece of paper with ink on it, I’ll take the physical gold, keep your measly tax incentives?
Anyone making more than $145,000 doesn't need to know this because they have someone known it for them.
Millions of American make more than 145K / year. What America is this?
I mean, they worry how the population will survive through retirement but they also make it harder to save for retirement, interesting
Build back better. Pffft.
The next economic crisis will be bigger since we can't afford to bail it out like last time. It should have been worse last time and honestly it wasn't as bad as it should have been. Also, those who will default on their loans will be those individuals who had good credit scores and the loans were more prime, which makes it scarier in many ways. Moreover, we have inflation now devaluing the dollar and markets, yet back then we really didn't(other than high gas prices).
Correction: The money in 401k doesn’t grow “tax free”.
Every single dollar in that account is subjected to tax, when you withdraw, per your tax bracket at the time.
Straight robbery corporations get tax breaks for 401k now they want to take your money
Tax the billionaire traitors!
Let's go Brandon!!! Thank you Democrats for yet another tax hike to fund the bloated Washington bureaucracy so it can continue to bleed taxpayers dry! Don't complain, you voted for this!
Does this mean high earners can use roth funds…instead of backdoor?
This is an atrocity. The fed should be ashamed of themselves.
I’m at the point of pulling all funds from retirement. I’m fed up with the fkng irs. It’s a con.
They are stealing our money! I am a teacher and this government is fkng me over!!
Totally unfair. Many if the contributors or finally able to contribute more after children have left home. Or some, placing the extra is after finally paying off student loans, and lower salaries. Penalties for saving is ridiculous. Meanwhile l, the multimillionaires and billionaires are not paying their fair share. $145,000, is not a lot when compared to those other characters.
"I believe every human has a finite number of heartbeats. I don't intend to waste any of mine." – Neil Armstrong
Billionaires pay nothing and you and me get to pay it all. The system is rigged folks. "It's a big club, and you're not in it." – George Carlin
Thanks Biden
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