Sunday, October 26, 2008

Democrats Love Taking Your Money

In case you didn't already know it. There's nothing a Democrat likes to do more than to spend your money. Not their money...yours.

And now they are planning on going after your 401(k). Teresa Ghilarducci, from the New School of Social Research has been invited by Democrats to testify about her "AWESOME" (read: ignorant) new plan for your retirement savings.

Here's the plan;
Eliminate all of the tax incentives for your 401(k) such as it being tax deferred until retirement (meaning that you have to pay income taxes every year on the growth of your 401(k), even though you can't access the money without being taxed more. And companies can no longer get the tax write off for contributing to your 401(k).

So not only will your company no longer match your contributions, when you get close to retirement, if you make $50,000 a year, and have $300,000 in a 401(k) that grows at a modest 7% that year, you have to pay income taxes on $21,000 that you actually never got. That is an additional $1,400 in taxes that you would magically have to come up with. If you had a good year and made 12% on your 401(k) ($36,000), you would have to pay over $3,600 in additional income taxes. And if you took money out of your 401(k) to pay for the income taxes on your 401(k), that money would be taxed at 40%. So you would have to pull out $6,000 from your 401(k) to pay for the $3,600 in income taxes on your 401(k)'s growth.

So what do they plan on doing about retirement savings? A Government Retirement Account controlled by the Social Security Administration that will take 5% of your income every year and match it with $600 per year. That's not bad. Until you look at how it will grow. 3%. A lousy 3%. That's less than half of the modest long term market average of 7%.

Here's a comparison for you. Lets say you make $30,000 every year for 35 years. Under the government plan, you would contribute $2,100 per year for 35 years, growing at 3%. And the grand total after 35 years is....
A whopping $130,779. That is barely 4 years of your $30,000 income.

Now let's look at the same contribution at a market average of 7%. So you are still making $30,000 per year, but with this, let's say your company will match half of your contribution up to 5% of your income. If that account has $2,100 added to it every year, that is only $1,400 of your income (instead of 1,500 for the government plan) and the company matches it with an additional $700. Now we let that grow for 35 years at a modest average of 7% and the total is now...

BUT! Let's looks at something else. What if you paid 5% and the company matched that at 50%. You would put in $1,500 and the company would match an additional 750, to $2,250 per year. That makes the total $332,805.

Now lets say you have a REALLY good company that matches your contribution dollar for dollar up to 5%. That's $3,000 per year at 7% for 35 years.
That gives a total of $443,740.

Do you really think the government should be in charge of your retirement savings? It could be a $310,000 question.

On top of that, here is a copy of a letter that my dad sent to The Tennessean;

The tax and spend Democrats are after your pocketbook again. They are planning to eliminate your 401K deduction and also increase the Social Security tax by 5% or more. So not only will you be taxed on your retirement earnings that used to be tax deferred through contributions to your 401K plan but they also want to force you to pay another 5% of your income to a "retirement account" that will be run by, guess who, the government. You will have no choice in the investment alternatives; it will be invested in government bonds only.

But make no mistake about it, this is not about planning for your retirement. This is another tax and spend plan that needs a source of income. Barack Obama wants to spend over $800 billion in his plan to fund global poverty and the Democrats need money to pay Social Security benefits to illegal immigrants. They have been stealing from the Social Security trust funds for decades and there is no reason to believe that this new source of revenue to the government will be any different. You will see your payroll withholding tax increase from 7.65% to approximately 13% and you will lose the tax deferral benefit of your 401K deductions. In addition, any earnings on your current 401K retirement fund will be taxed as ordinary income each year instead of being deferred until your retirement. So your tax withholdings for FICA will approximately double and your income from your 401K will be added to your normal income and be fully taxable each year which effectively reduces your retirement account balance.

So don't be surprised, if and when the Democrats take control of the government, that your taxes will drastically increase even though Barack Obama has pledged that they won't. Actions speak louder than words and the Democrats need a new funding source for their tax and spend plans. And guess who's going to provide that funding? You.

1 comment:

Michelle said...

I know Social Security is broken, but the government broke it so how do expect this to work too? I guess the government wants to rob Peter to pay Paul. And by Peter, I mean the American people. I cant believe people are still not scared about the idea of big government involved in their lives. I dont want them telling me how to run my healthcare policy and I SURE AS HELL dont want them dictating how I invest my money!!!