SURVEY SAYS

SURVEY SAYS: What Do You Think about Changing the Tax Treatment of 401(k)s?

By PS | March 26, 2012
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In the past two years, proposals have been made to change the tax treatment of 401(k) contributions either by capping the amount of contributions that can be made to a plan pre-tax or by taxing all contributions and giving participants a refund of a certain amount when they file their taxes.

Those making the proposals say it will provide more money to the government and create jobs and boost the economy. However, analyses by retirement industry groups argue it will hurt retirement savings for American workers.   

Last week, I asked NewsDash readers, how do you feel about changing the tax treatment of 401(k)s?  

Eighty-nine percent of responding NewsDash readers said changing the tax treatment of 401(k)s will hurt Americans’ retirement savings, and 11% said it possibly could.  One respondent said it will not hurt Americans’ retirement savings. The “other” responses were that it depends on how the tax treatment of 401(k)s is changed.  

Two-thirds (66%) of respondents think employees would be discouraged from saving for retirement, and 58% indicated employees would still save, but at a lower amount. (More than one response was allowed.) Forty-one percent said employers would be discouraged from offering retirement plans, and 30% said employers would offer plans, but not contribute to them.  

Only 5% feel employees would not change their behaviors, and only 4% believe employers would not change their behaviors.  

Among “other “ responses, one NewsDash reader said any and all of the above could change, another said it would create more complexity in an already complex tax code and another indicated it may make the Roth 401(k) more attractive.  

The verbatim comments (there were many) were strong, with some saying changing the tax treatment of 401(k)s would be “disastrous,” “a tragedy,” “insane” and “a travesty.” However, one reader said: “Of course, anything that pushes the pendulum back toward DB plans and lifetime income is a plus.”