Say goodbye to 401(k) as we know it …

23 10 2008

… that is if the Democrats have their say: House Democrats Contemplate Abolishing 401(k) Tax Breaks.

Current style 401(k) with tax exempt contributions and employer matching would be replaced by mandatory 5% contribution into a fund that would be invested into government bonds at 3% guaranteed return. As a token of “appreciation” government would pay you $600 yearly into that fund.

For a lot of people that would be a bad deal because the tax exemption and the employer contribution is worth way more than $600 per year. Also, though right now the guaranteed 3% rate may seem a great deal, remember that over longer time stock marker performs significantly better than that. Plus when government says that something is “guaranteed” who knows what it means.

It is difficult to say what the impact of removing all the new 401(k) money from the stock market would be.

But, at least Democrats are not proposing nationalizing the existing 401k accounts as Argentina is going to do.

At least not for now …

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