BF2S Forums 401k? WTF Democrats?

It's a double tax - so there is no way anyone with a brain could support this. If you're not given the tax break upfront - you're still getting taxed when you pull funds out of a 401K - it's a double income tax without the upfront tax break.

Agent_Dung_Bomb wrote:

I certainly don't think it should be mandatory, but I didn't see anything that indicated double taxation.  As I read it, it would work like certain types of IRA accounts.  These types of accounts have the money put in post tax, but then you only pay taxes on the interest earned when you go to withdraw the money.  Accounts where money is put is pre-tax have the entire amount taxed at the time of withdrawl.  Depending on the tax laws at the time you withdraw the money, you could potentially be taxed more than paying for the taxes at time the money is deposited to the account.

It's double taxation because you fund it after they've withheld your taxes on your paycheck...and then you get taxed when you withdraw it.  Aka the elimination of the benefit of a 401k.

The "interest earned" tax is the same as what you have now - 15% of the gain.

And I agree with you on not making it mandatory, but I don't see anyone in their right mind would buy bonds for their retirement plan when working...unless they're like 60 years old. 

If it were mandatory, everyone will have to work longer because: they have less money to invest from their paycheck having a 5% lien, the tax advantages for retirement accounts would be essentially closed, and automatically raising the taxes on retirement money - because you'd have to fund a larger part of your retirement from your personal portfolio which has no tax advantages.

Last edited by Pug (2008-10-31 08:13:51)

Pug wrote:

Agent_Dung_Bomb wrote:

I certainly don't think it should be mandatory, but I didn't see anything that indicated double taxation.  As I read it, it would work like certain types of IRA accounts.  These types of accounts have the money put in post tax, but then you only pay taxes on the interest earned when you go to withdraw the money.  Accounts where money is put is pre-tax have the entire amount taxed at the time of withdrawl.  Depending on the tax laws at the time you withdraw the money, you could potentially be taxed more than paying for the taxes at time the money is deposited to the account.

It's double taxation because you fund it after they've withheld your taxes on your paycheck...and then you get taxed when you withdraw it.  Aka the elimination of the benefit of a 401k.

The "interest earned" tax is the same as what you have now - 15% of the gain.

And I agree with you on not making it mandatory, but I don't see anyone in their right mind would buy bonds for their retirement plan when working...unless they're like 60 years old. 

If it were mandatory, everyone will have to work longer because: they have less money to invest from their paycheck having a 5% lien, the tax advantages for retirement accounts would be essentially closed, and automatically raising the taxes on retirement money - because you'd have to fund a larger part of your retirement from your personal portfolio which has no tax advantages.

No, it's not double taxation.  For example.

Pre-Tax:

You contribute $100K and after interest you have an account with $200K at the time you go to withdraw the money.  You pay taxes on the entire $200K.

Post Tax:

You contribute $100K and after interest you have an account with $200K.  You pay taxes only on the $100K of earned interest because all initial contributions were done post tax.

Now, since you don't have any idea what the tax codes are going to be at the time you go to withdraw the money, you could potentially be hit with a larger tax bill than if your initial contributions were made post tax.  Doing 401K contributions pre-tax only delays when you are going to have to pay them.

The only problem with eliminating pre-tax contributions are from the standpoint of the employer match.  Because a business is an entity that can go on indefinitely, putting money there pre-tax is an advantage to them for reducing their current tax liability.

Now I would certainly have a problem with double taxation.

Double Taxation:

You contribute $100K of post tax money into an account that has $200K at the time of withdrawal, and you have to pay taxes on all $200K.  That would be double taxing the $100K of initial post tax contributions.

Last edited by Agent_Dung_Bomb (2008-10-31 08:58:09)

topal63 wrote:

In your example: so are you going to take out the whole $100K difference; or rather the interest earned. So how mow much am I; you; we; anyone actually pulling out? How is it not a double tax - unless one liquidates the account to realize the gain.

Example:
You contribute $300K total over your lifetime in the contribution period and earn 15% compound-ed over some time period; and it equals about $150K in interest earnings. (I doubt it - but hey maybe?) And you've already paid 25% tax on the contributed part. Now you go to take money out - what part of, say, a $2000 withdrawal for retirement income is interest income and which part is the original principle investment?

It's income to be taxed. It is nearly impossible to compute interest-earned until the entirety of an equity-stake is sold and liquidated. I am doubtful - that they could tax it without it not being a double tax. The devil is in the details. And when they get done with the details it will have to have an income tax rate imposed upon it.

Also, if $300K invested had not paid the 25% tax - the principle could have been potentially $375K instead, or $75K towards spending in the economy over the time period (for/as personal use). And, the interest earned could have been $187.5K expanding the example retirement account to a potential total of about $560K vs $450K.

It's not that difficult to calculate the taxes without liquidating the entire account.  If all the money is pre-tax and interest/dividends then 100% of whatever you withdraw is subject to taxes.  If 1/2 of what's in your account is post tax contributions, then only 1/2 of what you withdraw is subject to taxation.

Now here is where you can get burned.  Your tax rates aren't retroactive.  That tax deferred money has to have its taxes paid at whatever the rate is at the time of withdrawal.  Now this is an extreme example, but it makes the point.  If you paid 25% taxes on the income that you put in post tax, you paid 25% tax.  Now what happens if the tax rate is 50% at the time you go to withdraw the money?  Under a pre-tax scenario if you withdraw $2k, all $2K is subject to that 50% tax.  That means you pay $1K in taxes and you get $1K.  Under the post scenario only 1/2 of what you took out is taxable.  So taking out $2K means only $1K is taxable, so you pay $500 taxes and you get to keep $1.5K.

I regularly read the money section of the paper, and they've talked about retirement strategies to help reduce your tax liability because such a scenario, while not as drastic as the example I used, can in fact happen because you are to some degree gambling on what the tax laws will be at the time you actually go to withdraw the money.

Now don't get me wrong, I'm not saying there aren't advantages to pre-tax contribution model, but there are also advantages to post tax instruments, which is why both are available.  My main point was simply that it is not a double tax unless they make you pay taxes on all income, so all contributions are post tax, and then make you pay taxes on it again at the time you take it out.

Agent_Dung_Bomb wrote:

Now I would certainly have a problem with double taxation.

Double Taxation:

You contribute $100K of post tax money into an account that has $200K at the time of withdrawal, and you have to pay taxes on all $200K.  That would be double taxing the $100K of initial post tax contributions.

From what I read, this is a possible scenario from the changes they are discussing.

Another version has them ending all of these retirement vehicles, except for the mandated 5% contribution and 3% gain per year.

We deserve the Administration we vote in.

I'm telling you, this is 1976 all over again with Obama as Carter...now all we need is OPEC to do a trade embargo on oil to raise its price (likely now that oil is $65/barrel).

Estate taxes are double taxation...and Obama (and his Dem friends) is all about increasing those, too.

What would really suck is if they implement "Imputed Income".

Don't even worry about a 401k if you are in the coal/coal related business (If ob wins).  Go find a new job.

DBBrinson1 wrote:

Don't even worry about a 401k if you are in the coal/coal related business (If ob wins).  Go find a new job.

Obama supports clean coal.  This was discussed in another thread where Obama said one thing then Biden said another.  It was also discussed in a (newer) thread about Obama and coal companies.  You can search if you want to find it so you don't sound like an idiot.

DBBrinson1 wrote:

KEN-JENNINGS wrote:

DBBrinson1 wrote:

Don't even worry about a 401k if you are in the coal/coal related business (If ob wins).  Go find a new job.

Obama supports clean coal.  This was discussed in another thread where Obama said one thing then Biden said another.  It was also discussed in a (newer) thread about Obama and coal companies.  You can search if you want to find it so you don't sound like an idiot.

The 401k of employees in the coal industry was discussed in another thread?  Ok Kenny...  The passive aggressive idiot quip is all you man.

Well, we've established that the Obama would "bankrupt" the coal industry.  We've established that Obama supports clean-burning coal.  We can assume that perhaps the 401k's of employees employed by outdated ("dirty") coal manufacturers could take a hit.

I was alluding to the idea that you come in with a one-liner about Obama's stated platform on coal industry (that has been discussed in previous threads) and it's assumed effects on coal-industry employees 401ks.  But even that is an assumption, because all you provided was one line, nothing more.

I thought my 'quip' was classic for my posting style, so I would agree that "it's all me, man".  Thanks for noticing!

Last edited by KEN-JENNINGS (2008-11-03 15:27:08)

KEN-JENNINGS wrote:

DBBrinson1 wrote:

KEN-JENNINGS wrote:

Obama supports clean coal.  This was discussed in another thread where Obama said one thing then Biden said another.  It was also discussed in a (newer) thread about Obama and coal companies.  You can search if you want to find it so you don't sound like an idiot.

The 401k of employees in the coal industry was discussed in another thread?  Ok Kenny...  The passive aggressive idiot quip is all you man.

Well, we've established that the Obama would "bankrupt" the coal industry.  We've established that Obama supports clean-burning coal.  We can assume that perhaps the 401k's of employees employed by outdated ("dirty") coal manufacturers could take a hit.

I was alluding to the idea that you come in with a one-liner about Obama's stated platform on coal industry (that has been discussed in previous threads) and it's assumed effects on coal-industry employees 401ks.  But even that is an assumption, because all you provided was one line, nothing more.

I thought my 'quip' was classic for my posting style, so I would agree that "it's all me, man".  Thanks for noticing!

Thanks for posting what I all ready knew.  Obama will bankrupt the Coal industries.  I don't agree with his "oh shit they're on to me... Clean Coal..Clean Coal!" like apparently "we" all here agreed on, but whatever.  So the 401k's of Coal industries part was assumed.  Gotcha.  Didn't think I really needed more than a line there to explain why, do you really what me to elaborate the assumed?  Wasn't that the intent of the first post?
 
@GS.  You're damn right I'll call OB on it.  And one day you'll stop giving him a free pass too.