by Teresa Kuhn, JD, RFC, CSA
Authorized Bank on Yourself (R) Advisor
If you're like most people... you participate in a 401 K or similar qualified plan. 401 K's, in fact are hands down the most widely held type of retirement savings account in the United States today.
The majority of the few Americans who have any sort of retirement savings have most of that savings invested in the 401 K plans at their work.
That's why, when I discuss"Bank on Yourself" with clients and prospective clients,the subject of 401 K plans usually comes up, with people asking questions such as:
"How much should I contribute to my work plan? Is it truly as safe and secure as I have been lead to believe? What are the tax issues of which I need to be aware?"
Philosophical issues (and there are many) aside, I see many problems with 401 K plans as they now exist.
These include: structural flaws, lack of accountability on the part of fund managers, obfuscated tax requirements and implications,lack of desire on the part of many people to do the work needed to manage their account for maximum benefit,and hidden fees.
For me, however, one of the most overlooked, yet potentially devastating problems with qualified plans such as the 401 K is that participants have virtually no input into rule changes which could prove detrimental to their financial well-being.
In other words, it is a GOVERNMENT plan and the GOVERNMENT can decide at any moment to change the rules and requirements without your knowledge or permission.
Some people think it is "scare-mongering," but many financial and political experts have suggested that, as the pressure to meet unfunded liabilities (aka: "debt") mounts, politicians will begin finding ways to tap into America's last great source of wealth:
The estimated 3.6 trillion dollars Americans have invested in 401 K plans is simply too great a temptation for them to avoid.
While outright confiscation is probably not going to happen, I believe that politicians will concoct a variety of stealthy ways to siphon off 401 K money.
A recent article in the Wall Street Journal discussed these types of stealth moves which should send up ten thousand red flags for anyone with money in a 401 K plan.
Here are some of the proposed changes floating around Capitol Hill according to the Journal:
• IRAs that would automatically enroll workers with no access to a workplace retirement plan, creating a means to save through regular payroll deposits.
• Capping retirement-plan contributions at $20,000 a year or 20% of compensation, whichever is less—including employer contributions. Currently, the limits are 100% of compensation or $50,000 a year.
• Replacing exclusions and deductions for retirement savings with an 18% tax credit, deposited directly into an individual's retirement savings account.
• Accelerating "automatic enrollment" of workers in retirement-savings plans, along with their default savings rate, and automatically increasing workers' savings rates each year.
• Simplifying the paperwork involved for small employers' adopting existing types of plans, with the goal of increasing access for more workers.
When you read between the lines, it's easy to draw the conclusion that most of these changes are being proposed with a view toward increasing the tax revenue coffers rather than really helping Americans plan their financial futures.
(read the rest of the article here:
http://online.wsj.com/article/SB10001424052702304331204577354024207255032.html?mod=rss_markets_main)
I'll be talking more about issues with qualified plans in future editions of the blog. If you have specific questions regarding your unique financial situation, including questions about your 401 K plan, please email them to me at: tbkuhn@gmail.com.
PS: Don't forget to ask me for your free copy of Bank on Yourself, by Pamela Yellen. I have a limited number of these available to people who want to learn how to get the most out of their money.
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