Financial Opinion and Insights

“I’m from the Government and I’m Here to Help You.”

The same people that have been spending your money – some say with a tremendous amount of waste built-in to help guarantee reelection back home – now seem to be talking in the hallways – the first step before talking ‘out loud’ in a committee room – about another way they can raise more money to fund more future spending.

Of course, they won’t be talking out loud before the election; but, there are a few who would like to tax your 401(k) – because, as we all know, apparently it’s only rich people who are investors.  How?  By eliminating deductions and reducing contributions, or some combination thereof.

According to ERISA attorney, Ary Rosenbaum, these proposals in the whispering stage (my description) include:

  1. Capping retirement-plan contributions at $20,000 a year or 20% of compensation, whichever is less-including employer contributions. Currently, the limits are 100% of compensation or $50,000 a year.
  2. Replacing deductions for retirement savings with an 18% tax credit, deposited directly into an individual’s retirement savings account.
  3. Accelerating “automatic enrollment” of workers in retirement-savings plans, along with their default savings rate, and automatically increasing workers’ savings rates each year.
  4. Simplifying the paperwork involved for small employers’ adopting existing types of plans, with the goal of increasing access for more workers.

Actually, #3 and 4 would make some sense.  Most Americans are woefully unprepared for their old age; but, #1 and 2 may be rather short-sighted.  Sure, there’s the up-front revenue generation; but, it’s important to remember that tax-deferred growth is ultimately taxed.  It would seem that a `money grab’ now might just result in a lot less revenue later; but, then, how else could they possibly get reelected?

——————Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a Certified Financial Planner® and an Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.   IFG provides investment and fiduciary consulting to retirement plan sponsors and selected individual investors. Plan sponsors can sign-up for Retirement Plan Insights here.  IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader.  The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.  Additional resources:   IFG Investment Blog. Retirement Plan Insights Archive.  Twitter:  @JimLorenzen.  See IFG on Brightscope.


Written by Jim Lorenzen, CFP®, AIF®

May 17, 2012 at 8:00 am