Accounting News

Thursday, September 15, 2011
Tax Changes for the 401k?

The Senate Finance Committee is investigating changes to the 401k system. As the government looks to increase their revenues for the current deficits and struggle to shore up social security for the wave of baby boomers they are looking at how the 401k is operated. Many argue that the current system isn't very fair. High income wage earners get a much bigger tax break for putting money into a 401k savings plan. With the savings gap hitting lower wage earners the question is how to encourage them to save. 

One plan would have a government match instead of a tax break. For example, consider putting $100 in your 401k. If your are in a 35% tax bracket, you get a $35 tax break for a cost of $65. If you are in a 15% tax bracket you get a $15 tax break for a cost of $85. If it was $30 match on $100 it would cost all brackets the same. This would be a tax increase so it is unclear if such a plan could garner a majority to get anywhere in the house.