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What is the likelihood that the government will start taxing your 401K/IRA balances within the next 10 years?
Background: My assumptions are as follows. QE1, 2, 3 etc have succeeded pretty well in US; and Japan and Europe are now trying their QEinfinity as well. But the marginal returns have been diminishing. People are saving too much via financial instruments (since cash has near-zero yield), thereby inflating stock and bond prices. Except for a few people at the top, incomes and consumptions haven't risen much, so there is more deflationary pressure than inflationary pressure. So... one way to stimulate growth would be to force people away from savings and into spending, by punishing savers (even more).
Granted, there are other ways to confiscate, such as bringing down estate tax exemption limits, but they hurt the rich the most. Politicians do not want to alienate the source of their campaign funding.
I'm going to say probably not, just because too many Americans have investments in these plans so it wouldn't be expedient politically. At the same time I'm not going to rule it out completely, particularly as the US declines. My biggest concern is them either raiding the Roth IRA's, or having a tax on net worth.
I fully expect things in the US to continue to get worse, hence why I'm not ruling out moving my retirement investments offshore at some point in the future, even if there is a penalty. At some point you need to find new sources of government funding. As more people come to depend on the government rather than taking their future into their own hands, the total number of people invested in 401(k)'s and IRA's becomes a minority of the population.
Savings rates in the US are very, very low. More savings would help finance our businesses in an economy that is still mainly capitalistic. Savings for retirement are a major priority for both parties.
I also disagree with the notion that only the very wealthy are doing well. Unemployment has been very low for most careers requiring education or advanced skills such as plumbing or auto mechanic. Salaries are starting to creep upwards as we face shortages in many fields. A host of baby boomers about to retire will cause some severe shortages in quite a few fields.
We are facing a big split between the "haves" and the "have nots". A lot of that has to do with the need for education and training for jobs of the future. Computerization, automation, mass farming, mass ranching, large scale retailing and other labor saving steps have greatly reduced jobs for those with minimal education and no advanced skills. Also we have a much more global economy. Labor intensive manufacturing has migrated to 3rd world countries with low wages. Many people have been overlooking those trends and have blamed the recession. No amount of strong economic growth is going to create a lot of demand for unskilled workers and many jobs that where formerly in demand and declining. Our world is becoming more technologically advanced. Those without the education, ability and/or interest to keep up with the changing world will continue to fall behind.
I fully expect things in the US to continue to get worse, hence why I'm not ruling out moving my retirement investments offshore at some point in the future, even if there is a penalty. At some point you need to find new sources of government funding. As more people come to depend on the government rather than taking their future into their own hands, the total number of people invested in 401(k)'s and IRA's becomes a minority of the population.
Wow, RecentGrad, I am sorry to hear that you are off to a slow start. I am not sure if you are a recent HS or college grad. If it is HS then I urge you to consider getting a college degree. There is no doubt that the 08 recession killed job opportunities for those trying to begin careers. My daughter had 3 close friends. All of them finished college and struggled. They returned to live at home with the parents. Fortunately after a couple of years all of them are doing well and have decent jobs and futures. My daughter was one of the lucky ones. After college graduation she and the boyfriend moved to the Bay area to look for jobs. I was afraid I would be supporting her, but both she and the boyfriend found good jobs in their fields within a few weeks. Now 3 years later, she has had several promotions, a doubling of her salary and head hunters are calling her with offers. I can be proud of my daughter, but her friends are also doing well and are finding that "things in the US" are continuing to improve. Even with an advanced education and an in demand field, I struggled for at least 10 years to reach the levels that my daughter and her friends are seeing.
Granted, there are other ways to confiscate, such as bringing down estate tax exemption limits, but they hurt the rich the most. Politicians do not want to alienate the source of their campaign funding.
There are multiple 'stealth' ways of taxing retirement savings. For example, in the UK, there was George Brown's famous 'raid'. What he actually did was to end tax relief on dividends earned by pension funds. There is just so much money sloshing around in the various retirement savings schemes that I just don't believe that politicians will be able to resist trying to get at some of it. How they actually do that remains to be seen. My guess is that it will be more stealthy than overt.
There are multiple 'stealth' ways of taxing retirement savings. For example, in the UK, there was George Brown's famous 'raid'. What he actually did was to end tax relief on dividends earned by pension funds. There is just so much money sloshing around in the various retirement savings schemes that I just don't believe that politicians will be able to resist trying to get at some of it. How they actually do that remains to be seen. My guess is that it will be more stealthy than overt.
They are going to get at it, without lifting a finger. That's what RMDs are for.
Wow, RecentGrad, I am sorry to hear that you are off to a slow start. I am not sure if you are a recent HS or college grad. If it is HS then I urge you to consider getting a college degree. There is no doubt that the 08 recession killed job opportunities for those trying to begin careers. My daughter had 3 close friends. All of them finished college and struggled. They returned to live at home with the parents. Fortunately after a couple of years all of them are doing well and have decent jobs and futures. My daughter was one of the lucky ones. After college graduation she and the boyfriend moved to the Bay area to look for jobs. I was afraid I would be supporting her, but both she and the boyfriend found good jobs in their fields within a few weeks. Now 3 years later, she has had several promotions, a doubling of her salary and head hunters are calling her with offers. I can be proud of my daughter, but her friends are also doing well and are finding that "things in the US" are continuing to improve. Even with an advanced education and an in demand field, I struggled for at least 10 years to reach the levels that my daughter and her friends are seeing.
Best of luck to you and your endeavors.
Don't mistake me - I'm doing quote well personally. I have a good-paying job right out of college and am saving 2/3 of my income. I'm talking about the US as a whole here. I think we're going downhill and it won't last forever. Today's "47%" is now the 51%. Why should one save for retirement if the government will give it to you? And as more and more Americans have absolutely no retirement savings, they'll be perfectly happy supporting a politician who wants to clean out our accounts and redistribute the money.
This is why I'm planning to leave the country completely once I save enough money to make me financially independent. Might even renounce my citizenship someday - who knows?
Don't mistake me - I'm doing quote well personally. I have a good-paying job right out of college and am saving 2/3 of my income. I'm talking about the US as a whole here. I think we're going downhill and it won't last forever. Today's "47%" is now the 51%. Why should one save for retirement if the government will give it to you? And as more and more Americans have absolutely no retirement savings, they'll be perfectly happy supporting a politician who wants to clean out our accounts and redistribute the money.
This is why I'm planning to leave the country completely once I save enough money to make me financially independent. Might even renounce my citizenship someday - who knows?
And go where? Which country will steal the least? Singapore?
Galt's Gulch is not a real place you know. Well it was but that turned out to be a scam - a story for another day.
Assuming you mean the balance would somehow be taxed prior to withdrawals, I'd they will not be taxed. 89 million people participate in an employer sponsored defined contribution plan, and I think that's such a large group that doing so would be political suicide.
Much more likely that we will see a VAT implemented at the federal level IMO.
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