It is long past time for Universal savings / retirement accounts.

[TWiley]

All that is required is to change a few really crappy tax laws.

Please ask your congressman or senator this:

Why are the contribution limits for an IRA only $5,000 when it is $16,500 for a 401k? Millions of workers are forced into lousy 401k plans that have extremely high fees which, in some cases, are shared with the company that offeres the plan. The 2% company match may actually be .05% at the end of the day in some cases.

What is needed is sane declaration that all retirement accounts should be treated equally under tax law. If I can contribute $16,500 to a shitty 401k, then I should be able to choose to put the same amount into an IRA or other retirement / savings account.

By simply changing the tax laws, Trillions of dollars could be attracted into the equity markets from private sources. Why play a shell game where workers are taxed, the Treasury sells bonds, the Fed buys enough to keep interest rates low, so the government can afford to buy stocks in public companies? How many federal tax dollars would banks really need if there were positive tax incentives associated with ownership of their shares?

It all begins with a universal retirement account where all plans would be treated equally under tax law, and rollovers from one plan to another would be permitted without penality. This would simplify tax law. Furthermore, if the government wants to subsidise the sugar industry, it could simply increase the tax-deffered contribution amount.

This might be the only opportunity our generation has to save for retirement. The upcoming retirement plan crisis will add emphasis to this point.

On Edit: The Canadiens already do this so there is history available for study.

[AwakeAtLast]

1. Why are there limits to IRAs anyway?

If you are saving for retirement, wouldn't it be better to put as much in as you can? :shrug:

I'm not a financial genius, so I don't know all the ins and outs, so that might be a dumb question.

What you are proposing sounds good to me!

:hi:

:kick: and R!

[TWiley]

2. Actually, there should be no limits on retirement contributions.

That is how I feel anyway. It all boils down to tax revenue at the end of the day. But, if someone is actually saving for retirement, then that should be a value-added componet to offset future govt liability.

If you withdraw before retirement age, then tax and penality. But, if you hold until retirement age, then minimal tax and no penality.

[Yupster]

4. If the rich could put unlimited amounts into their

retirement plans, then a guy making $ 2 million a year would put $ 1.8 million in his IRA and since half the tax revenues are paid by the top 10 % of taxpayers, the treasury would be bare in a week.

Actually it's bare now anyway since the government is borrowing about half the total amount of money it's spending this year. You don't have to be in the financial industry to see that will lead to a very quick disaster.

[TWiley]

10. Not really the point ....

Nobody is advocating $1.8 million per year of tax free savings. I am only saying that all retirement accounts should be declared equal under the law. 401k programs have a yearly contribution limit of $16,500. Why not give the worker the option of saving their money (the same amount) in a different account if they can get lower fees and better investment choices?

The fraud that caused the sub-prime messs, and the S&L scandle years ago is the same industry that self-governs 401k plans. Workers are a captive audience. They must save in a 401k or not have any tax deferred savings over $5k per year. Now why is that? Lets see if I can spell lobbyist right.

If the financial industry is abusive to the workers retirement, then why does the government mandate (through tax law advantages) where the savings is kept? Why not allow these changes:

1) Rollover from 401k to any Traditional IRA at any time.
2) Equal yearly contribution limits with equal tax status.

Now, this would certianly cause the financial industry to clean up its act a bit. Their captive audience would suddenly have an exit.

[Yupster]

11. Well the problem is that if people can put 15 k in IRA's

then upper middle class and wealthy families will pay less taxes which means there will be less money available for aid to very poor families, student loans, housing for the poor, and everything else we as a party stand for.

Pushing for wealthy people to pay less in taxes is just not what the Democratic Party stands for.

[Yupster]

3. There are limits to IRA contributions

because they are tax cuts for the rich.

When Bush raised the limit from $ 2,000 to $ 5,000 he was cutting the taxes for the rich since the poor can't take advantage of that tax break since they

a) don't pay income taxes
b) don't have $ 5,000 to put in

[TWiley]

7. Well, the destitute are not the only part of the democratic party.

Besides, you are missing the main point

1) Millions of working people are trapped in shitty 401k plans because of the laws
2) Millions more working people do not have 401k plans offered at work
3) IRA limits are 1/3 401k limits .... why?

The idea is that there is NO good reason why I should not be able to fund my IRA and enjoy the same tax benifit as I get in my 401k. It is only a perk for banks, brokerage firms, and businesses that take advantage of a captive audience. Many workers have to pay 5% on funds they can get equivalents for at 0.75% or less (0.10 for index) inside brokerage held IRA accounts.

So, you obviously support two positions. The first is that the democratic party should include ONLY people who work for minimum wage or on welfare. Also, you seem to support the gouging of workers by the financial industry.

The best opportunity to allow the most people retire by their own means is to change the stupid bush era tax laws that feather the nest of corporate america at the expense of the worker.

[Cleita]

8. Nothing says you can't save more money if you have it.

You will just have to pay taxes on it instead of having it deferred like in an IRA. I'm not familiar with 401ks so I can't comment.

[TWiley]

9. Well, there should be no differences.

But there are differences. Big tax differences on two different types of accounts that do the same thing. I am referring to a 401k plan which is the most common type that is sponsored by the employer. It has a maximum contribution amount of $16,500 per year. The traditional IRA is the non-employment sponsored equivelant and has a maximum annual contribution limit of $5,000.

What this does is force the working person to participate in really really bad retirement programs because it is their only option. In the near future, you will begin to hear about 401k industry abuses and the poor bastards who worked their entire life and got "Enron-ed" at the very end because they were not allowed to choose where their retirement savings were kept.

Think of it this way. What if the government told you which institution you had to keep your savings in and allowed you no other options? Now, realize that you are a captive in the 401k industry, and forced to put the majority of your life savings into plans that are substantially more expensive than those offered to the public. If the govt demanded you save for retirement at bank "A" that charged you 5% as fees on your account, when bank "B" actually gives you a toaster and has no fees but you are not allowed to save for retirement there. Why? Oh, it is because of arbitrary tax law.

One day you will be saving for retiremnt too. I hope you will have more choices than the rest of us do today.

[DrDan]

5. doesn't fit in reaganomics

the R's want you to spend spend spend - not save. Can't make those savings plans too attractive - if we did, Americans might gravitate toward the savings rates of the rest of the world.

Still early - perhaps Obama will make some moves to improve our rate of saving.

I agree completely. We should encourage retirement savings.

[thecrow]

6. When I was employed I paid myself first .

And I tell my kids to do that, too.

I could only afford to "pay myself" 10% of each paycheck. But when you are starting this it could be a much smaller amount, especially if you are young. The habit racked up a good bit of money pretty fast!
I put it in the bank, put it in CDs or invested it (apart from my IRA) in stocks.

Now that I'm without a job, I am not as bad off as I would have been if I hadn't done it.
I don't have to pay any penalties yet, and the money is tax free because it is "after tax" money.
But... will The Powers That Be devise some sort of a break for someone like me?
They tell me to save, but if this goes on much longer, I will lose my house and my savings will be gone. And I'm pretty close to retirement age! And UI is an insulting joke..

Anybody got a waterproof refrigerator box? :)

[A HERETIC I AM]

12. I agree with you but there is a little logic to the caps on contributions.

I think the $5,000 limit on IRA contributions is too low also, but there is at least some logic to the way the IRS rules are structured.

Countless threads on DU have debated taxation of "The Rich" as well as the very well compensated. But the current IRS rules do address this to a certain degree. If you make too much money, you can't participate in a 401(K) or use a Roth IRA at all, forcing you to use either traditional bank saving methods, insurance products (annuities, whole life policies, etc.) or traditional brokerage accounts. Regardless of how much you make, you can still have an IRA but you can't put more than that $5,000 limit into it each year. Tax deferred accounts are targeted at those people who really benefit from them the most, specifically people to whom the deferral of the payment of capital gains taxes to a later date makes a big difference.

Tens of millions of people (and many thousands of DUr's I would think) have regular, taxable investment/brokerage accounts. In such an account, if you make a trade that results in a gain from a security you've held less than a year, you are taxed at 35% on the amount you made. If you hold it a year or longer, you are taxed at 15% (it isn't completely that simple, but it works as a general rule. It's the IRS code, after all!). The burden of having the liability for that 35% or 15% each year is considerably less for someone who makes a very large salary as opposed to someone living paycheck to paycheck.

Have a look at this web page. It shows the contribution and salary cap limits for the various types of retirement plans

If you'll notice, it states the compensation limits for being able to contribute to a Roth, 401(K) plans and SEP IRA's.


Individuals do have other avenues for putting away money and earning a better rate of return than a regular savings account but some of them have fees as well, like Annuities for instance. One could certainly invest in Municipal Bonds and realize a completely tax-free rate of growth.

I do agree completely that the $5,000 limit is too low, but how high to raise it is a serious question that warrants careful consideration. I think $20,000 is a fair figure, but it isn't really so easy.

From a standard of living perspective, we want to tax those the most who are least affected by the difference between making a lot of money and making a little less of a lot of money.