New penalty on 401k plan withdrawals
Tom Gross
>If anyone can explain any reason for there being a penalty for
>withdrawing money from a savings plan, let me know.
>Sounds like the investment banking
>lobbyists got their way on this one. They probably wanted to
>make it completely illegal to withdraw funds from savings plans
>but didn't have enough money ^h^h^h^h^h^h influence to convince
>congress, so settled for this compromise :-).
If they had lowered the marginal tax rates, as they did,
WITHOUT adding a penalty for early withdrawal from 401K
plans, everyone who had been shielding their income in
401k plans for the past couple of years could withdraw their
money next year with considerably less exposure to taxes. It may
not be that 28%+15% will equal out to what your original tax would
had been on your 401k contribution, if 401ks had never existed,
but how much complexity do you want?
Instead of calling a 401k plan a "savings plan", why don't you
call it a tax shelter for rich people? You talk as though the Feds
have decided to tax withdrawals from piggy banks.
I might have cashed in mine (it was one of the first things I
thought of when they were talking about lowering the top rate to
27%), but it doesn't bother me that they out-flanked me on this
one. Should it bother me? I'm getting a TREMENDOUS tax shelter
this year and building a nice nest egg for the future; I don't feel
I need any more preferential treatment. I guess if you think rich
people deserve more tax breaks, then adding the penalty on 401k
withdrawals would be a pisser.
Tom Gross
Apollo Computer, Inc.
Chelmsford, MA
Kenneth D. Jordan
> >From: t...@apollo.uucp (Tom Gross)
>
> If they had lowered the marginal tax rates, as they did,
> WITHOUT adding a penalty for early withdrawal from 401K
> plans, everyone who had been shielding their income in
> 401k plans for the past couple of years could withdraw their
> money next year with considerably less exposure to taxes. It may
> not be that 28%+15% will equal out to what your original tax would
> had been on your 401k contribution, if 401ks had never existed,
> but how much complexity do you want?
>
> Instead of calling a 401k plan a "savings plan", why don't you
> call it a tax shelter for rich people? You talk as though the Feds
> have decided to tax withdrawals from piggy banks.
>
> I might have cashed in mine (it was one of the first things I
> thought of when they were talking about lowering the top rate to
> 27%), but it doesn't bother me that they out-flanked me on this
> one. Should it bother me? I'm getting a TREMENDOUS tax shelter
> this year and building a nice nest egg for the future; I don't feel
> I need any more preferential treatment. I guess if you think rich
> people deserve more tax breaks, then adding the penalty on 401k
> withdrawals would be a pisser.
>
>
> Tom Gross
> Apollo Computer, Inc.
> Chelmsford, MA
>
>
I disagree. The 401k cannot be considered a rich mans tax shelter (especially
now that its going to be limited to 7k/year.) I feel that the gov't is
renigging on old promises (why doesn't this surprise me :-) ).
The 401k was advertised as a means of reducing your taxable income WITH
the extra eye-catcher that you would be able to remove the $$ from the
401k for financial difficulties (eg. Buying a house, college expenses, ...).
For those of you who invested your money for any of these reasons, you
are now taking it in the rear from old Uncle Sammy.
Further, according to the nightly news a couple of days ago, the polls are
saying that the public does not agree with what the gov't is doing regarding
this "simplification" of our tax system. I agree with the fact that our
tax system probably needed an overhaul, but lets face up to the facts that
the new tax laws are going to complicate tax returns for the majority of
filers.
Rick McLean
> > >From: t...@apollo.uucp (Tom Gross)
> >
> > ... It may
> > not be that 28%+15% will equal out to what your original tax would
> > had been on your 401k contribution, if 401ks had never existed,
> > but how much complexity do you want?
> > I might have cashed in mine (it was one of the first things I
> > thought of when they were talking about lowering the top rate to
> > 27%), but it doesn't bother me that they out-flanked me on this
> >
> > Tom Gross
> > Apollo Computer, Inc.
> > Chelmsford, MA
>
> renigging on old promises (why doesn't this surprise me :-) ).
>
> The 401k was advertised as a means of reducing your taxable income WITH
> the extra eye-catcher that you would be able to remove the $$ from the
> 401k for financial difficulties (eg. Buying a house, college expenses, ...).
>
> For those of you who invested your money for any of these reasons, you
> are now taking it in the rear from old Uncle Sammy.
>
> Further, according to the nightly news a couple of days ago, the polls are
> saying that the public does not agree with what the gov't is doing regard
>
I have been using the 401K to save for a house and now am faced with the
change. What I missed in these articles is that the change also denys
access to company contributions. This effectively means the down payment
will evaporate at the end of the year. I agree that this was a bait-and-
switch to alleviate the lack of Social Security funds "when the baby-boomers
retire".
Bill Tuthill
>
> It may not be that 28%+15% will equal out to what your original tax
> would had been on your 401k contribution, if 401ks had never existed,
> but how much complexity do you want?
Where did this 15% figure come from? Yesterday's Wall Street Journal
(September 2nd) pegs the penalty at 10%, the same as for an IRA.
Bill Tuthill
LocklearLB
>
>
> >If anyone can explain any reason for there being a penalty for
> >withdrawing money from a savings plan, let me know.
> >Sounds like the investment banking
> >lobbyists got their way on this one. They probably wanted to
> >make it completely illegal to withdraw funds from savings plans
> >but didn't have enough money ^h^h^h^h^h^h influence to convince
> >congress, so settled for this compromise :-).
>
>
> If they had lowered the marginal tax rates, as they did,
> WITHOUT adding a penalty for early withdrawal from 401K
> plans, everyone who had been shielding their income in
> 401k plans for the past couple of years could withdraw their
> money next year with considerably less exposure to taxes. It may
> not be that 28%+15% will equal out to what your original tax would
> had been on your 401k contribution, if 401ks had never existed,
> but how much complexity do you want?
>
> Instead of calling a 401k plan a "savings plan", why don't you
> call it a tax shelter for rich people? You talk as though the Feds
> have decided to tax withdrawals from piggy banks.
.
.
>
> Tom Gross
> Apollo Computer, Inc.
> Chelmsford, MA
The reason that the original poster talked about savings plans is because she
MEANT savings plan as opposed to 401k plan. Here at AT&T we have a 401k plan
to which we can contribute pre-tax dollars and a company savings plan to which
we can contribute after-tax dollars. I assume that this situation also exists
at other large compnies. The MONEY magazine article that the original poster
referred to talked about penalizing early withdrawals from 401k plans AND
company savings plans.
It doesn't matter to me that early withdrawals from 401k plans will be
penalized since I will use mine to replace my IRA. But the talk of penalizing
withdrawals from company savings plans really irritates me. Why should
I get penalized for using my savings plan the way it is intended to be used?
What is an early withdrawal from a savings plan?!?!?!?
Never having heard of this provision until the MONEY article, the only
rational explanation that I can think of is that the MONEY magazine
article used "401k" as a synonym for "savings plan" in the same way the Tom
used it in his posting. I certainly hope that this is the case. Can anyone
shed some light on this subject?
Barry Locklear
AT&T Information Systems Labs
Denver, CO
han...@mips.uucp
> now that its going to be limited to 7k/year.) I feel that the gov't is
> renigging on old promises (why doesn't this surprise me :-) ).
>
> The 401k was advertised as a means of reducing your taxable income WITH
> the extra eye-catcher that you would be able to remove the $$ from the
> 401k for financial difficulties (eg. Buying a house, college expenses, ...).
>
> For those of you who invested your money for any of these reasons, you
> are now taking it in the rear from old Uncle Sammy.
All the information that I saw when considering a 401k plan (principally
that produced by the company offering it) clearly stated that the Gummint
was considering legislation that would limit or eliminate the ability to
remove the money for "financial difficulties." (I used quotation marks here
because buying a house and college expenses are totally forseeable events,
not some unexpected difficulty.)
Further, the permissible contribution was limited to less than $7k per year
by restrictions that were intended to ensure that the 401k plan was not used
only by the wealthy members of the company.
Finally, 401k money automatically pops loose even upon voluntary resignation
so unless you're going to stick with the same company for the rest of your
life, you can get it back sooner of later anyhow.
In any case, the 401k plan is hardly equitable, as it is not available
to those working in companies or small business that aren't equipped
to offer it. The administrative costs are prohibitive for a small company,
but it doesn't take too much guessing to figure out where the "political
action" came from to put in onto the books.
So if you guys are gonna cry to Uncle about your pet deductions, how about
shedding a tear for the more-than-doubled taxes on capital gains?
Craig Hansen
MIPS Computer Systems
--
Craig Hansen | "Evahthun' tastes
MIPS Computer Systems | bettah when it
...decwrl!mips!hansen | sits on a RISC"
A.S.Kamlet
:
:
> The 401k was advertised as a means of reducing your taxable income WITH
> the extra eye-catcher that you would be able to remove the $$ from the
> 401k for financial difficulties (eg. Buying a house, college expenses, ...).
Is that right? Has anyone had experience with the IRS when trying
to remove 401K money for financial difficulties??
I've heard (but not tried it out) that it's really, really, (I mean
REALLY) hard (read: almost impossible) to have the IRS bless removing money
from a 401K for Financial Hardship. That if you want money to
put your kids through college, you virtually have to sell almost all your
assets first, to raise the money. Then you have to apply for conventional
loans.
Can anyone verify how easy is actually was to get the IRS's OK
when they withdrew money from a 401K for hardship?
--
Art Kamlet AT&T Bell Laboratories Columbus {cbosgd | ihnp4}!cbrma!ask