Berko: Beware, Congress has its eye on your 401(k) plan
By Malcolm Berko
Published: February 25, 2018, 6:03am
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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?
— J.S., Fort Lauderdale, Fla.
Dear J.S.: 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.
Malcolm Berko addresses questions about stocks. Reach him at P.O. Box 8303, Largo, FL 33775 or mjberko@yahoo.com.
