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Congress considering massive reduction in 401k limits to $2400 (from $18,000)

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  • Congress considering massive reduction in 401k limits to $2400 (from $18,000)

    I actually did not believe my eyes when I first read this.

    Whatever your political position, you cannot pretend to call the current tax proposal a middle class tax cut if you are reducing the 401k employee contribution limit by almost 90%. This is a critical tax-saving strategy of the (broadly defined) middle class. Of course it doesn't make a lick of difference to those clearing $1,000,000 or $1,000,000,000, and no word from sources about  any changes in the rules governing employer contributions, deferred compensation, or other strategies more likely to be used by the top 10%.

    https://www.nytimes.com/2017/10/20/us/politics/republicans-tax-401-k.html

  • #2
    I think this will rapidly go the way of Obama's proposed cut to 529 contributions.

    Even if it goes through the WCI readership will be fine. It'll suck to pay the taxes up front but it sounds like those taxes will be lower. Then we'll all just be talking about the most tax-efficient vehicles in our newly swollen taxable accounts or the best way to navigate the Mega Backdoor Roth.

    As with all GOP policy, this will hit GOP voters the hardest by far.

    Comment


    • #3




      When you look at how little the middle class actually uses these things, i could see how someone does consider it just fine for the middle class to make the reduction.  Not that im in favor of them doing this but its hard for me to pretend that all of these retirement plans dont benefit the wealthy primarily.  When you make it this low (assuming employer contribution is correspondingly also low), it becomes why bother with it at all.
      Click to expand...


      I agree broadly about benefiting the rich, but with respect to the 401k I think its benefits reach far deeper into the real middle class than, say, 529s or backdoor Roth IRAs. Many, many 'regular' people save more than $2400 per year in 401ks.

      Comment


      • #4
        I am not going to worry about it until it happens. Even Congress doesn't know what the eventual bill will look like. Now mess with the Cap Gains rate and I will be PO'ed.

        Comment


        • #5




          I think this will rapidly go the way of Obama’s proposed cut to 529 contributions.

          Even if it goes through the WCI readership will be fine. It’ll suck to pay the taxes up front but it sounds like those taxes will be lower. Then we’ll all just be talking about the most tax-efficient vehicles in our newly swollen taxable accounts or the best way to navigate the Mega Backdoor Roth.

          As with all GOP policy, this will hit GOP voters the hardest by far.
          Click to expand...


          Traditional GOP base, yes;  not his populism base, which I'd venture don't have sizable utilization of their tax deferred accounts since they'll all be spending gobs more on the destabilized individual insurance marketplace.

          There's one thing to point out a ship with a wobbly, undersized rudder--there's a whole other situation when the captain intentionally breaks it.

          Comment


          • #6




            I actually did not believe my eyes when I first read this.

            Whatever your political position, you cannot pretend to call the current tax proposal a middle class tax cut if you are reducing the 401k employee contribution limit by almost 90%. This is a critical tax-saving strategy of the (broadly defined) middle class. Of course it doesn’t make a lick of difference to those clearing $1,000,000 or $1,000,000,000, and no word from sources about  any changes in the rules governing employer contributions, deferred compensation, or other strategies more likely to be used by the top 10%.

            https://www.nytimes.com/2017/10/20/us/politics/republicans-tax-401-k.html
            Click to expand...


            Yeah, IF they are successful of passing any sort of tax reform, doctors are going to get screwed.  We don't make enough to benefit from any of the top 1% handouts that they are proposing and we make too much to benefit from the smaller stuff they are proposing.  If they get rid of 401k, get rid of state tax deductions, get rid of most itemized deductions, including the self-exemption credit, we are going to see a pretty massive spike in our taxes.  I suppose if we can all figure out a way to get paid via 1099's and form s-corps then we might come out ahead, but I doubt I'll be able to pull that off.

            It's pretty unbelievable how blatant they are being with this tax overhaul though.  They are giving the top 1% and above MASSIVE handouts and everyone else is getting either peanuts, nothing, or going to see their taxes go up.  And all of this will drastically add to the country's debt, which will further harm future generations of working class Americans.  Meanwhile the ultra wealthy (who control the media and most of the government via super PACs) are keeping the rest of the idiots in the country distracted with BS by spewing crap about hot button topics (such as abortion, immigration, racial tensions, etc) and consumerism.  I guess it's pretty smart really.  Distract the idiots with all kinds of BS so they don't see what's actually going on.

            At this point I can only hope that there are enough intelligent, non-corrupt senators and congress members to block such terrible ideas from actually becoming law.

            Comment


            • #7




              I am not going to worry about it until it happens. Even Congress doesn’t know what the eventual bill will look like. Now mess with the Cap Gains rate and I will be PO’ed.
              Click to expand...


              You don't have to worry about that.  Remember, they are looking to protect the ultra wealthy who primarily get most of their income via long term capital gains and dividends.  If anything, you'll see a reduction in those taxes as well.

              Comment


              • #8
                You haven't even mentioned the (undefined) limits on professionals taking advantage of the humongous tax breaks proffered for pass-through entities.

                Comment


                • #9




                  You haven’t even mentioned the (undefined) limits on professionals taking advantage of the humongous tax breaks proffered for pass-through entities.
                  Click to expand...


                  I mentioned it.  If this tax reform stuff actually passes, I think a lot of us will be discussing how to pull that off.  I'd be very curious.  I suppose doing locums would accomplish that?  I'd be all for it

                  Comment


                  • #10







                    I actually did not believe my eyes when I first read this.

                    Whatever your political position, you cannot pretend to call the current tax proposal a middle class tax cut if you are reducing the 401k employee contribution limit by almost 90%. This is a critical tax-saving strategy of the (broadly defined) middle class. Of course it doesn’t make a lick of difference to those clearing $1,000,000 or $1,000,000,000, and no word from sources about  any changes in the rules governing employer contributions, deferred compensation, or other strategies more likely to be used by the top 10%.

                    https://www.nytimes.com/2017/10/20/us/politics/republicans-tax-401-k.html
                    Click to expand…


                    Yeah, IF they are successful of passing any sort of tax reform, doctors are going to get screwed.  We don’t make enough to benefit from any of the top 1% handouts that they are proposing and we make too much to benefit from the smaller stuff they are proposing.  If they get rid of 401k, get rid of state tax deductions, get rid of most itemized deductions, including the self-exemption credit, we are going to see a pretty massive spike in our taxes.
                    Click to expand...


                    I admit to not having seen the newest proposal, but theres no way its middle class tax cut at all. It increases most of their taxes or at best a wash. It did cut taxes greatly for physicians that are self employed, though I know they were trying to 'fix' that.

                    In aggregate, its correct to say that the middle class does not utilize 401ks, and they are certainly a tool of the wealthy.

                    I dont think any of this will matter in the long run as some of these proposals are so cutting to almost every person it will be impossible to look the other way for long. Already, HC costs are crushing normal and higher paid people alike, add in a 'tax cut' that makes your life worse and this admin may not be there long and hopefully people wake up.

                    Comment


                    • #11
                      What I'm referring to is that they are proposing pass-throughs be taxed at 25% instead of the owner's rate. However, because of the disaster in Kansas, Munchin et al have made noise that they would do something to prevent high income professionals like doctors from exploiting that differential in tax rate. They haven't made any attempt to define how they would do that; I suspect it would have some sort of minimum # of employees to qualify for the lower rate, or else specifically excluding professional services by name from qualifying. Either way, doing locums etc wouldn't help and the tax code would be directly written to disfavor doctors vs other types of workers.

                      Comment


                      • #12




                        What I’m referring to is that they are proposing pass-throughs be taxed at 25% instead of the owner’s rate. However, because of the disaster in Kansas, Munchin et al have made noise that they would do something to prevent high income professionals like doctors from exploiting that differential in tax rate. They haven’t made any attempt to define how they would do that; I suspect it would have some sort of minimum # of employees to qualify for the lower rate, or else specifically excluding professional services by name from qualifying. Either way, doing locums etc wouldn’t help and the tax code would be directly written to disfavor doctors vs other types of workers.
                        Click to expand...


                        Read that as well. Though it seems so complicated to do such a means testing that they will either have to scrap it altogether (the tax break) or simply not do the testing. In reality it is almost impossible to do both effectively. I imagine they say they will try for press, and just ram it through anyway.

                        Comment


                        • #13
                          What I read in the WSJ this morning was someone has proposed limiting pretax contributions to $2000 to encourage post tax (roth) savings.  If this passed and took the income restrictions away from Roth accounts we would be net beneficiaries.  I would give up a tax deduction to directly contribute to a roth account.  This is my interpretation of the proposal anyway.  Our government wants the money now not when you are 70.5.  I also recommend not worrying about it until it passes.

                          Comment


                          • #14






                             
                            Click to expand…


                            Yeah, IF they are successful of passing any sort of tax reform, doctors are going to get screwed.  We don’t make enough to benefit from any of the top 1% handouts that they are proposing and we make too much to benefit from the smaller stuff they are proposing.  If they get rid of 401k, get rid of state tax deductions, get rid of most itemized deductions, including the self-exemption credit, we are going to see a pretty massive spike in our taxes.  I suppose if we can all figure out a way to get paid via 1099’s and form s-corps then we might come out ahead, but I doubt I’ll be able to pull that off.

                            It’s pretty unbelievable how blatant they are being with this tax overhaul though.  They are giving the top 1% and above MASSIVE handouts and everyone else is getting either peanuts, nothing, or going to see their taxes go up.  And all of this will drastically add to the country’s debt, which will further harm future generations of working class Americans.  Meanwhile the ultra wealthy (who control the media and most of the government via super PACs) are keeping the rest of the idiots in the country distracted with BS by spewing crap about hot button topics (such as abortion, immigration, racial tensions, etc) and consumerism.  I guess it’s pretty smart really.  Distract the idiots with all kinds of BS so they don’t see what’s actually going on.

                            At this point I can only hope that there are enough intelligent, non-corrupt senators and congress members to block such terrible ideas from actually becoming law.
                            Click to expand...


                            With respect, this is not at all surprising and even expected to those of us who have been following "real news" for the last 15 years. Their whole economic plan is to make the country into KS and they are imperviously resistant to any actual data on what their policies will accomplish.

                            The GOP has total message control over its voters, something the Dems can't even dream of. They can do whatever they want with almost no electoral consequences b/c not only do they have an extremely loyal base but they also directly tell that base what to think.

                            Comment


                            • #15
                              it's quite a stretch to say this is a net win for docs. high earners should defer as much income as possible until their tax bracket is lower. there is almost no good reason to forego a pretax contribution for a Roth in most circumstances.

                              this is different than making a backdoor Roth Ira contribution, which is the conversion of after tax money to a Roth. that scenario is almost always favorable.

                              Comment

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