Is Your 401(k) Safe from the Government?
By Dr. Carole Hornsby Haynes | January 5, 2015
The subject of 401(k) confiscation by an out of control government on a wild spending spree has been making headlines for the past several years. Successful at nationalizing healthcare and education, politicians are now attempting to get their hands on our retirement money.
Given that the national debt is $18 trillion we can expect politicians to aggressively target deferred tax accounts for new sources of revenue.
People are required to pay taxes when they withdraw money from their traditional 401(K) accounts and a penalty for early withdrawals. But there is reason to believe that the government will begin incrementally to access the trillions of dollars beyond those taxes.
We have been forewarned of such shenanigans underfoot by former Speaker of the U.S. House of Representatives who famously said, “Your 401(k) belongs to the government.”
Of course there won’t be outright confiscation. That would trigger the Second American Revolution.
No, it will be a subtle and gradual confiscation through such means as these.
In 2008 a U.S. House of Representatives subcommittee considered ending 401(k) plans and implementing “guaranteed retirement accounts.” Workers would deposit 5% of their pay and the government would deposit $600 per year -- for a great government guaranteed return of 3%! This would have save $80 billion in 401(k) tax incentives. That never got out of committee.
The Treasury Department borrowed federal workers’ retirement funds during the debate over the national debt limit in 2011 and 2012.
In 2012 President Obama’s National Commission on Fiscal Responsibility and Reform proposed reducing, or eliminating altogether, tax deferred retirement plans to help balance the budget.
In 2013 President Obama proposed a $3 million cap on tax deferred retirement accounts. This proposal went nowhere.
In his 2014 State of the Union speech, President Obama announced a new government Ponzi scheme -- “MyRA” – which he defined as a new government savings bond that guarantees a decent rate of return. This supposedly is for someone who does not have a 401(k) plan and allows for a minimum deduction of $5 from one’s paycheck. The investment is, for now, voluntary. If our nation continues on the same track, we can expect this to change to “mandatory” as soon as the politicians deem it safe to do so without a taxpayer rebellion. MyRA as a “savings bond” is nothing more than a new form of Social Security with which the government can “rob Peter to pay Paul.” Americans foolishly believe their Social Security contributions are their own guaranteed retirement income. Nancy Pelosi burst that bubble when she said that Social Security payments to retirees are simply “entitlements.” Entitlements can be taken away. After all, there is no Social Security account with your name on it. Will politicians next set up voluntary accounts for 401(k)s in government guaranteed accounts like the MyRA? Will they then become mandatory with stringent government control? What will happen to SEP accounts?
President Obama included the cap on citizens’ retirement savings in his proposed 2015 budget. For now, that proposal too went nowhere.
The message is clear. Politicians will continue to try to access the trillions in the tax deferred retirement accounts. Will they be successful? If so, to what extent?
Although it is probably unlikely the government will outright confiscate 401(k) accounts, the tax structure and rules for withdrawal can be changed – and not in favor of the worker.
How about Social Security retirement benefits?
Those benefits are already being taxed if the recipient has certain levels of other income. Will Social Security benefits be denied altogether at some point to those with higher incomes? That has been a topic of conversation for several years. Given the Progressive agenda for inciting class warfare, loss of Social Security by higher earners is a reasonable expectation.
In the past I have been a strong supporter of tax deferred plans. However, with the dangerous government overreach ratcheting up, I have become wary of all things government.
Just what if I am wrong and this nation is taken over by a left wing dictatorship and tax deferred accounts are confiscated? You say that won’t happen? Spend a bit of time studying the pattern of radical government takeovers. We’re right on course.
There are other drawbacks to 401(k) plans, including very limited investment choices in many plans. On the other hand, if your employer makes a contribution to your account, invest enough to get that free money and put the rest of your retirement savings in other non-government controlled accounts.
Our Founding Fathers provided in the Constitution that no “direct tax shall be laid.” They knew that once it began, there would be no end to the devious ploys dreamed up by corrupt politicians to tax the American people into serfdom.