Caution! Your 401(k) May Be In The Congressional Crosshairs

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No Brainer Day-2I keep hearing that Congress is looking to raise revenue in every area that they can. Mainly because they can’t harness their addiction to spending. I’m glad we don’t give them access to QVC!

Now I’m hearing that your 401(k) may be in the Congressional Crosshairs. Yep, Congress has a bullseye on the 401(k).

I’m usually the last person to use the word crisis, because I think the word gets so over used. However, I do think we have a Retirement Crisis that has been brewing in this country for 20 years or more. One statistic I recently read stated that about 48% of Americans have less than $10,000 in savings! Yikes.

You would think that Washington would look for ways to encourage the average American to save more. 

Not so. So why do you think that Congress and the President are targeting retirement savings plans? The answer, to quote bank robber Willie Sutton, that’s where the money is.

Cutting Retirement Plans for Deficit Reduction
Tax breaks for 401(k) and other retirement savings plans add up to $100 billion per year, and will cost Uncle Sam an estimated $429 billion from this year to 2017. That is more than phasing out the mortgage interest deduction. Getting the picture?

These plans are tempting political targets. Mainly because 80% of the benefits go to the top 20% of earners, according to the Tax Policy Center. Give me a break. Everyone has an equal opportunity to participate and defer as much as they can.

I think there is great possibility that lawmakers may look at limiting the tax benefits of retirement plans, instead maybe they shouldn’t give themselves a pay raise every year. All this will accomplish is that employers may not offer or stop offering a retirement plan where you work.

Proposals on the Table
It’s too early to tell exactly how 401(k)s might get affected, but one proposal gaining ground is called the 20/20 plan. It was a deficit reduction propel that came from the bipartisan Simpson Bowles Commission of 2010.

Heres how 20/20 would go:
Under current law, employees can contribute up to $17,500 in their 401(k) plans in 2013, and $23,000 for people 50 and over. Under this proposal, you and your employer together would be allowed to contribute $20,000 or 20% of your salary, whichever is less…and that includes your employers match.

Some other suggestions would be to tax the money before you put it into the 401(k). Another would be that future contributions would not grow tax-deferred.

What can you do now?
With retirement plans an easy target, there are really only a couple of things you can do.

First, invest as much as you can in your 401(k) or whatever plan your employer offers. If you are eligible for an IRA, hit that too, up to the limit. In 2013 it will be $5,500 and $6,500 if you are over 50.

Second, if your employer’s plan offers advice, use it. You will get great tips and savings ideas from an advisor. Studies have shown employees that use the advice actually do better.

Third, don’t complain. We elected these clowns from both parties….vote for those that will protect the stuff that matters.

Finally, if you need some help with your personal situation, write me at david@lexwealth.com or call me at (859) 225-2596. I’d love to help you.