(NewsReady.com) – The Democrats often talk about “making the rich pay their fair share.” The reality? Financial experts are warning that the taxes Joe Biden plans to raise to pay for his eye-watering spending plans include one that could hammer the retirement accounts of over 100 million ordinary Americans.
.@GroverNorquist: Biden’s critique might have made sense when he began his political career. But today, more than 100 million Americans save in 401(k)s, up from 19 million in 1990, along with many others using IRAs, 403(b)s and 529 college savings plans. https://t.co/tDT51DJvxi
— ATR (@taxreformer) October 3, 2020
Right now, there’s a big tax sweetener for employees who save for retirement through their company’s IRA or 401(k) plans. Workers can defer paying tax on their contributions until they retire. That means they get the interest that would’ve been paid out in taxes, which can give their retirement fund a serious boost. Now Biden wants to replace this with a tax credit scheme. It sounds generous, but there’s an expensive catch.
Under the Biden plan, workers would get a tax credit for the money they invest. It’s reported that Biden’s team is talking about setting this at 26%, so for every dollar you invest the government will add another 26 cents to your retirement fund. The catch is that you’ll be taxed for it immediately, not when you retire — and except for the lowest-paid workers, the tax is more than the credit. If you’re on the 32% tax rate, $1.26 would go into your retirement fund then the government would take 32 cents right back out again. Instead of a dollar, you’d invest 94 cents.
The law says any business owner who invests in a 401(k) must offer the same benefit to their employees, and business owners often pay 32% tax. If a 401(k) loses its tax benefits they’ll stop investing in them, and that means their workers will miss out too.
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