Is the Government Trying to Steal Your Retirement?
from daveramsey.com on 19 Sep 2013
Back in April, we told you about President Barack Obama’s proposal to cap retirement accounts at $3 million in an effort to generate much-needed revenue for the federal government.
The topic got a lot of attention, and more than one reader asked why the government could propose to cap citizens’ retirement savings, but citizens had no power to cap government spending.
A Tempting Budget Fix
The fact is, tax-preferred retirement funds like 401(k)s and IRAs can look like irresistible piles of cash to governments that are feeling the pinch of out-of-control budgets and falling revenue. Occasionally, the leaders explore ways to tap those funds without causing too much of a stir.
- Back in 2008, a U.S. House of Representatives subcommittee heard testimony in favor of scrapping 401(k) plans and switching to “guaranteed retirement accounts.” Workers would put in 5% of their pay and the government would deposit $600 a year and guarantee a 3% return. The goal: To potentially save the $80 billion the government spends each year on 401(k) tax incentives.
- In 2011 and a few months later in 2012, the Treasury Department borrowed money from federal workers’ retirement funds as the nation’s leaders debated raising the nation’s legal debt limit. These were the fifth and sixth times in 20 years the Treasury Department borrowed from federal workers’ retirement money.
- In 2012, an organization called the American Society of Pension Professionals and Actuaries launched a grassroots campaign to protect American’s retirement plans from congressional budget cuts. Their concern centered on recommendations from President Obama’s National Commission on Fiscal Responsibility and Reform to cut back or eliminate 401(k) tax breaks to help cut spending and balance the federal budget.
Keep Some Perspective
With the exception of the Treasury borrowing (and paying back) money from federal workers’ retirement plans, none of these proposals has ever even made it to a vote. So, the likelihood of the government actually doing away with 401(k)s, IRAs or even the tax breaks for those accounts is slim.
But you need to know government leaders do discuss topics like these. You’ll not only be a more informed citizen and investor, you’ll be able to keep your cool the next time you hear talking heads accuse the government of “killing the 401(k).”
Be Prepared for the Next Rumor Mill
When you see those headlines start to swirl again, keep two things in mind:
- Don’t panic. Some investors immediately pull the plug on their investments in an ill-advised effort to keep the government’s hands off their money. But they actually put that money directly into the government’s pockets through taxes and penalties they could have avoided by simply leaving their money alone.
- Get a professional’s perspective. Financial advisors eat, sleep, and breathe financial news. If anyone has the latest information on financial topics, it will be the folks whose living depends on retirement savings regulations. They’ll be glad to discuss changes with you—even changes that don’t come to pass.
Talk to an Expert You Can Trust
You can find an experienced financial advisor who will always have time to answer your investing questions through Dave’s network of investing Endorsed Local Providers (ELPs). Your ELP will also help you make a plan to build as large a retirement nest egg as possible. Find your ELP today.