The 401(k) is a retirement plan where employees are allowed to remove their savings before it gets taxed. There have been rumors that retirement savings will be taxed to add as a source for government funds. Find out the truth on this as Mr. Berko tells his thoughts on taxes and retirement savings.
Taxes and Retirement Savings
Dear Mr. Berko:
I have $362,000 in my 401(k) account. It took me 22 years to accumulate that amount. Now I’m told that Washington is considering a tax on the current value of everybody’s retirement accounts to help pay for the Tax Cuts and Jobs Act. Is this true?
My wife and I recently moved back to Fort Lauderdale and discovered you’re no longer on the air with your great call-in radio show. Why?
We’ve tried to remember your great definition of the word politics. Could you repeat it for us?
— JS, Fort Lauderdale, Fla.
It takes a daunting amount of preparation to host a call-in radio talk show for two hours twice a week. And after a dozen delightful years of hosting a fun-filled financial program on WSBR and writing this column, something had to give. The column won!
My definition of politics comes from two words: “poly-,” a combining form of Greek origin meaning “many,” and “ticks,” a noun denoting bloodsucking parasites. It’s so apropos today! With very few exceptions, it’s difficult to imagine a more fitting definition of Congress, as well as a great many elected officials in our 50 state legislatures. However, it also poignantly speaks to the intelligence and indolence of the voters who put them in office. Resultantly, the voter shoulders a great deal of the blame for so many of our nation’s problems. And yes, Congress wants to mess with our retirement accounts in hopes of finding enough revenue therein to pay for the tax cuts.
The first scheme that’s being floated (still in subcommittee) is to restrict the amount of money all workers could save pretax in 401(k) plans to $2,400 annually. Today workers in a 401(k) can save up to $18,000 a year, and those who are older than 50 can save $24,000. Because contributions are pretax, workers who have been saving $18,000 annually would pay taxes on an additional $15,600 of income. This additional tax would help pay for the tax cuts.
A second plan notes that Americans have saved over $7.6 trillion in 401(k)-type defined contribution plans, plus $8.6 trillion in individual retirement accounts, some 70 percent of which was rolled over from 401(k) accounts. That totals $16 trillion (nearly enough to pay off our national debt), and this amount grows larger each year. So far, this $16 trillion is virgin territory; it’s an untouched and untaxed asset that has nearly every “pollutician” in Washington salivating. Members of Congress want to figure out a way to tax this money and help pay for the tax cuts. And they want the money now. So they devised an ingenious second scheme to tax those trillions now rather than wait for the money to be slowly withdrawn five or 15 years hence. The incentive is to pay lower taxes (10 percent) on your retirement plan distributions now rather than wait until you retire and pay a much higher tax rate. Congress figures that if it offered a low tax rate of 10 percent on 401(k) money transferred to tax-free Roth accounts, it would theoretically generate new taxes of $1.6 trillion. And that would easily pay for the tax cuts. That’s an expialidocious idea, and I’d take advantage of that offer in a Sioux City second!
However, it would be only a stopgap measure, because the revenue from this potential tax would be a one-time event. It wouldn’t address the growing deficits plaguing the nation because Americans are too lazy to become informed voters. That’s why there are so many crooks in Congress. Eventually, Congress will propose a value-added tax. This is a consumption tax imposed by 160 countries across the oceans, fleecing citizens to pay for government pet programs. This consumption tax is placed on a product whenever value is added at a stage of production and at the point of retail sale. The United Kingdom, for example, has a flat 20 percent value-added tax, while the VATs in Germany, France, the Netherlands and Spain range between 5 percent and 21 percent.
A 5 percent VAT here in the U.S. would produce an extra trillion dollars annually for members of Congress to use to pay for repairing our infrastructure or otherwise spend while lining their personal pockets.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
COPYRIGHT 2018 CREATORS.COM
4 Ways To Get Your Retirement Plans Back On Track
Whether you are nearing retirement or already enjoying your golden years, the recent market correction – and subsequent rally – has millions of Americans reconsidering their retirement plans.
If you’ve found that your retirement accounts aren’t quite where you would like them to be, don’t worry, there’s still time – and steps you can take – to improve your financial situation.
Play “Catch Up” In Your Retirement Accounts
If your nest egg isn’t as sizable as you had hoped it would be by this stage, there is some good news. If you are over the age of 50, you can make what are called “catch-up contributions to your retirement accounts. These allow you to put more money into your retirement account each year than is permissible for those under the age of 50.
For example, the 401(k) contribution limit for those 50-and-under in 2020 is $19,500. But for those over 50 years of age, you can contribute an extra $6,500 this year as a “catch-up” contribution, for a total of of $26,000.
The same thing goes for a traditional IRA. The typical limit for 2020 is $6,000 per person. But for those over 50, you can contribute an additional $1,000 to catch up, for a total of $7,000.
Convert Your IRA To a Roth IRA
As Suze Orman recommended a few weeks ago, if you have a traditional IRA, it might make sense to convert over to a Roth IRA this year. With a traditional IRA, your money is invested pre-tax and you don’t pay any taxes until you start withdrawals.
With a Roth IRA, your deposits are after-tax, so you don’t pay any taxes when you withdraw money in retirement. Given the massive budget deficits our country is running, there’s a very strong likelihood that taxes will be much higher in the future than they are today.
So while it may be appealing to let your money grow tax-deferred in a traditional IRA, you could end up paying a higher tax rate in the future. If you convert your IRA to a Roth IRA, you would pay your taxes in the year you convert. This could be extra-beneficial if you will fall into a lower tax bracket this year due to job losses or retirement. Pay the taxes this year at a lower tax rate and let the money grow tax-free going forward.
Review Your Social Security Blanket
Social Security is a major part of every retiree’s monthly income. Fortunately, that monthly income won’t ever decrease, and is automatically adjusted for inflation every year. So it makes the decision of when to start collecting Social Security very important.
You can start collecting as early as age 62, but your benefits will be permanently reduced as much as 30%. If you were born between 1943 and 1954, your full retirement age is 66, and for those born between 1955 and 1960 the full retirement age is 67 – and is also 67 for everyone born after 1960.
Here’s where some patience can pay off: if you can afford to wait until age 70 to collect your benefits, your monthly checks will be 8% larger for every year you delay claiming your benefits.
Pay Off Loans Against Your Retirement Savings As Soon As You Can
Pay off any 401(k) loans as soon as possible. A loan against your 401(k) is counter to your goal of saving for retirement. inadequately funded.
Also, the money you are paying your loan back with has already been taxed, so you are paying back pre-tax money with after-tax money. To further frustrate you about taking out the loan, when you eventually retire and start withdrawing from your 401(k) you will be taxed again.
So you will end up paying taxes twice. It’s better to not take a loan against your 401(k). Although, if you must, pay it back as soon as you can.
Helping Retirement Savers Recover From Covid-19
IRI Offers 5-Point Plan
What IRI is proposing today will help Americans as our nation begins its recovery from the COVID-19 pandemic by enhancing savings opportunities…so they can enjoy a secure and dignified retirement.”– Wayne Chopus, IRI President & CEOWASHINGTON, D.C., UNITED STATES, April 14, 2020 /EINPresswire.com/ — The U.S. government is providing a robust response to address the immediate health and economic hardship millions of Americans dealing with during the COVID-19 pandemic. Further measures are being considered by Congress and the Trump Administration to provide additional government resources to address the crisis while weighing steps to help the nation recover.
As the nation looks toward an eventual recovery, the Insured Retirement Institute (IRI) is offering a five point plan to assist retirement savers who have lost jobs, access to participate in a workplace retirement plan and experienced losses in their retirement account values due the COVID-19 virus pandemic and the all-out public health efforts undertaken to protect Americans.
“Our first concern is to defeat the spread of the COVID-19 virus and protect Americans’ health,” said Wayne Chopus, IRI president and CEO. “But looking ahead to when the nation’s leaders begin to lift social distancing measures and Americans return to work, we will need a recovery plan to help retirement savers.”
With millions of Americans losing jobs many are also losing their ability to make contributions to retirement accounts, harming their ability to prepare for their own futures. American workers have been hit hard by sudden uncertain employment outlooks and volatile markets negatively impacting retirement account balances. This exacerbates an existing crisis where too few Americans are saving adequately for retirement.
“IRI’s recommendations focus on creating more opportunities for Americans to keep their tax-deferred retirement savings longer as a way to recoup some of the losses resulting from the COVID-19 crisis,” Chopus added. “It also offers the means for employees who have been negatively impacted to enhance their ability to save more for their retirement.”
“The proposal we are putting forward consists of common-sense policy recommendations to help workers recover and mitigate their losses. If enacted, we believe they will go a long way towards preventing many Americans from experiencing a retirement crisis on top of the health and economic effects of this terrible pandemic,” said Paul Richman, IRI Chief Government and Political Affairs Officer.
IRI’s plan includes:
Proposals to Help Americans Keep Money Longer
• Increase RMD Age to 75
• Eliminate Barriers to Allow Greater Use of Lifetime Income Products
Proposals to Help Americans Save More Now
• Allow Catch-Up Retirement Contributions for those Affected by COVID-19
• Expand Retirement Saving Opportunities for Non-Profit Organization Employees
• Clarify Start-Up Tax Credit to Incentivize Small Businesses to Join MEPs/PEPs
Many retirement savers experienced a loss of account value during the last recession a decade ago. Those entering retirement at that time were at higher risk of outliving retirement savings. IRI’s recommendations are comprised of policies designed to help Americans avoid that from happening again.
The plan offers opportunities to allow those savers with retirement accounts that may have lost value to keep their money longer, allowing for more time to recoup losses. The plan also contains proposals which will afford Americans options to save more money now and let those additional savings to grow over time.
“What IRI is proposing today will help Americans as our nation begins its recovery from the COVID-19 pandemic by enhancing savings opportunities during their remaining working years so they can enjoy a secure and dignified retirement,” Chopus said.
The Insured Retirement Institute (IRI) is the leading association for the entire supply chain of insured retirement strategies, including life insurers, asset managers, and distributors such as broker-dealers, banks and marketing organizations.
Insured Retirement Institute
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Copyright 1995-2020 IPD Group, Inc. All Right Reserved.
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