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Joe Biden vs. Your 401(k)


The U.S. Government realized many decades ago that too many Americans were not properly preparing for a financial future in retirement. Social Security was never intended to be the source of all retirement income. The traditional Pension Plan was neither universal nor financially secure due to underfunding. One of the surest signs that Washington, D.C. recognized impending problems was passage of the Employee Retirement Income Security Act of 1974 (ERISA). ERISA recognized and started correcting funding problems in the nation’s Pension Plans. That was followed in the early 1980s by a dramatic reform of Social Security.

In a Revenue Act passed in 1978, Section 401(k) was introduced into the U.S. Tax Code. Section 401(k) did not create a new type of Retirement Plan, but rather modified the already-existing Profit-Sharing Plan. Originally, Profit-Sharing Plans, which are defined contribution plans, only allowed employers to contribute a portion of profits into individual accounts for their employees. The addition of Section 401(k) allowed employees to defer part of their own salaries to that same account.

A steady transition to 401(k) Plans ensued nationwide, some by replacing traditional Pension Plans, and others by adopting the new employee salary deferral language into existing Profit-Sharing Plans. The rest, as they say, is history. 401(k) Plan growth has been rampant. In recent decades, many Americans have responsibly provided for themselves, and will not become a burden on society.

Guided by self-proclaimed Democratic Socialist, Bernie Sanders, Biden recently published the Biden-Sanders Unity Task Force Recommendations, which is a policy statement for the Democrat Party in the 2020 Presidential election. Biden’s retirement plan recommendations include (a) reducing pre-tax contributions to the lesser of $20,000 or 20% of pay, and/or (b) expanding the current Saver’s Credit to relatively lower earners ($19,500 for singles, and $39,999 for couples).

Overall, Biden's Tax Plan, which allows smaller deductible retirement plan contributions as a main component, will further tax Americans between $3.5 Billion and $4 Billion over 10 years. Most of this new revenue will come from higher-earning Americans and Corporations. Taxing corporations and wealthy people does not create jobs, and in fact, has an opposite effect.

Lowering deductible contribution limits, or even decreasing tax savings from current limits, could never enhance the stated government role of helping Americans provide for their own futures. Biden claims that his proposal will reduce “income inequality” for Americans. We disagree.

Van Wie Financial is fee-only. For a reason.