SHORT-- - - - SIGHTED
Y
our future is at risk—the future of your
401k that is.
According to Brian Graff, the Executive Director and
CEO of the American Society of Pension Professionals and
Actuaries (ASPPA), the tax benefits enjoyed by over 60
million Americans covered by a 401K or similar plan could
be affected in the tax debate in Washington.
It has been over 25 years since Congress last reformed
retirement taxes and Graff is concerned any new rules will
disadvantage retirees. “The last time they did [retirement]
tax reform they cut the 401k limit by 70%. And given how
much the current budget deficit and the accumulative debt
that this country has, it is a major driver for pretty much
everything to be accountable,” explained Graff. “…We
need to make sure that they [Congress] don’t rob Peter to
pay Paul and break the retirement piggy bank of American
workers.”
Graff believes this particular issue is tragic because tax
revenue lost from retirement deferrals is best described as
illusory, because it is only a deferral. “It’s a fiction because
we’re not a deduction, we’re a deferral. When the money
comes out of the plan it’s going to pay the government
back. But because they need that cash back [during the] ten
year budget window, you don’t get credit for the fact that
it’s a deferral as opposed to a pure deduction like mortgage
interest or charitable deduction,” Graff explains. “So, in
reality they aren’t going to raise as much money as they
think and they are going to be deducting the amount of
money that they raise in later years when people would
have been taking that money out for retirement.” Simply
put: we are borrowing tax revenues from the future to
lower today’s deficits.
While some may think this is a problem solely for the
wealthy, Graff insists this is not the case. Of these 60 million
Americans covered by a 401(k) or similar plan, 80% come
from households making less than $100,000 in income.
Graff explains wealthy investors will be able to retire in
any eventuality, however it’s the working class American’s
potential for retirement that will be most affected.
He explains there are a number of proposals being
brought up that are cause for concern, such as cutting
annual contribution limits. The most recent proposal
considers placing an annual lifetime cap of the amount
401k participants are permitted to have in their retirement
account. 8