Obama and retirement accounts

[kaidez]

Now that Obama's elected, what does it mean for those of us with 401(k)s and IRAs?

If we go by his economic plan, Obama will push for allowing those who take early and/or hardship withdrawals from those accounts to do so without paying the standard penalty for 2008 and 2009 (you'll still have to pay the tax though).  He'll also push to change the law so that no one has to take a required minimum distribution if they don't want to when the time comes.

Thing is, none of this gets done without Congress and here's where things get sticky.  The Democrat-packed Congress wants to do away with the tax advantages that come with 401(k)s and all the various IRAs (interesting story about that here).  And if you believe the  Roth IRA site, the ever-popular Roth may be in trouble of disappearing.  The Roth reduces taxes in the long run for the average citizen, and Democrats are not about reducing taxes.

I need to say that I'm a registered Democrat but I wholeheartedly disagree with what Congress wants here.  That being said, I don't any of what they want is going to happen.  If anyone in Congress proposes this, they'll most likely do so just as the stock market is on the uptick.  The rest of the congressional body will then have to deal with constituents who are seeing their retirement accounts start rise, and then find out that Congress wants to do away with their tax breaks.  Once that happens, I believe that the support for such a  resolution will bite the dust.  Even if it does pass, there will be some grandfather clause for accounts that already exist.

Just my .02 here...

[Flexo]

Now that Obama's elected, what does it mean for those of us with 401(k)s and IRAs?

If we go by his economic plan, Obama will push for allowing those who take early and/or hardship withdrawals from those accounts to do so without paying the standard penalty for 2008 and 2009 (you'll still have to pay the tax though).  He'll also push to change the law so that no one has to take a required minimum distribution if they don't want to when the time comes.

I don't have a problem with this.  It might encourage withdrawals from the stock market, but if people absolutely need the money it's good that the option will be there without penalty.  I don't think it will encourage people to treat their 401(k) as a regular emergency fund.

Thing is, none of this gets done without Congress and here's where things get sticky.  The Democrat-packed Congress wants to do away with the tax advantages that come with 401(k)s and all the various IRAs (interesting story about that here).  And if you believe the  Roth IRA site, the ever-popular Roth may be in trouble of disappearing.  The Roth reduces taxes in the long run for the average citizen, and Democrats are not about reducing taxes.

I would not be happy with changes mid-stream.  I invested using a 401(k) and Roth for their tax advantages, and the decisions were based on one set of rules.  If they want to do away with the tax advantages, it should not apply to existing accounts.  If a cell phone provider changes the rules in the middle of your contract, they let you out without paying a termination fee. If Congress changes the tax rules for existing 401(k)s or Roth IRAs, I may want to get out of those investment account types and I would expect not be charged a penalty for doing so.

I don't think it will pass, though.

[Randall]

I'd tend to agree. I doubt that any changes to retirement funds gets thoroughly trashed by the time it comes close to a vote. There isn't really any alternatives left nowadays. Private pension funds are going the way of the dinosaurs, and Social Security as a retirement option?!?? 

Too many people like the retirement arrangements, both standard and Roth varieties, that you'll get a deluge of irate voters writing their congresscritters.

[nickel]

As for the termporary removal of penalties, I have mixed feelings on this. I think it's a bad idea in the long run to remove barriers that are there to protect people from their own bad decision making. However... This won't affect anyone that choose not to partake.

What has me more worried are across the board changes to retirement accounts, which would affect everyone across the board. That being said, I have a hard time believing that things like 401(k) and IRA deductions will go away. Remember, these things will have to be passed by Congress, and Congressman typically like to be re-elected. A move like this would piss off a LOT of constituents. If someone doesn't care about getting re-elected, then perhaps they'd vote for something like this. Also, this would make the Social Security mess even worse, as people would be even more dependent on a system on the verge of breakdown.

[Randall]

I'm kind of on the fence with the suspension of penalties too. On one hand, it might encourage some to use their pension funds. On the other, there's people that HAVE to use their funds to survive (last resort) and they're going to be penalized even worse by having to fork over the extra money AND use up their savings.

Maybe it's better to let them have a little back, for those that really don't have any other choice.

I'm against it long-term though.