Proposal to Abolish 401(k) Tax Breaks

by Dual Income No Kids on November 8, 2008 · 0 comments

We got wind of a proposal that is currently being looked by Congress to abolish the tax breaks currently offered for contributing to 401 (k)s.

Just to get it out there up front: we DINKs are firmly against this proposal.

Their reasoning behind the proposal are several fold:

1) They are arguing that the loss of funds in the recent stock market collapse, a whopping $2 Trillion over the last fifteen months, are evidence of the risk that individuals face on the open market.

2) Investors face relatively high fees on managing 401(k)s.

3) Changes that have been proposed would cover everyone, not just those who choose to save.

4) They also have a beef with investment advisers giving advice to folks about their retirement.

Under this plan individuals would receive a $600 subsidy from the government, but then would be required to invest 5% of their salary into a social security managed fund that would be guaranteed.

Here is an article from Investment News for those who are interested in learning more.

As for our thoughts on the proposal to abolish tax subsidies for 401(k)s:

1) We think that the tax breaks currently offered for investing in 401(k)s does a lot to encourage saving.

2) Arguing that investment advisers are any worse than whoever would be managing funds from the government side of things is ridiculous. It just means that the fed would guarantee your money, not that it would actually go further. If you look at the current social security structure they’ve managed to set up a system that doesn’t even benefit from the wonder of compound interest – so how could we expect a better system to manage a mandatory contribution.

3) Speaking of which, the mandatory aspect of this proposal just kills us. Certainly we are for investing. But let’s face it, we are all adults and we can make our own choices. With social security itself already eating at our pay checks we think there should be a balance between individual choice and government mandates.

We differ a bit on social policies, but overall agree that financial matters should be left more up to the individual. If the government really wanted to do something, they would help by providing financial education from grade school through retirement.

Readers: We’d love to hear your two cents on the subject, since we know that opinions differ greatly in this area.



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