Category Archives: Money/Investing

Trump Administration Considering the Removal of the Pretax Benefit of 401(k) and Similar Plans?

As time goes on Trump seems to be acting, ignoring his trumpeting, more and more like a TURD.  The Oxford Club is a mixed bag, you have to sort the wheat from the chaff in most of what the send their members.  Hopefully the 401K alarm below is just more chaff or there has been a change in the legislation since the proposal/miscommunication.  Amazing.

From an email via The Oxford Club dated 5/2/2017:

Have They Lost Their %&*#! Minds?!

Marc LichtenfeldLast week, Treasury Secretary Steve Mnuchin and Director of the National Economic Council Gary Cohn laid out President Trump’s proposal for tax reform.

Though details were scarce, there were a lot of things to like, including lower tax rates for individuals and businesses, elimination of the alternative minimum tax and a simplification of the tax code.

On the surface (which is as in-depth as Mnuchin and Cohn would get), most of it is good stuff.

But there’s a proposal out there that is so bad, it could completely wreck the retirements of millions of people.

The Trump administration is considering the removal of the pretax benefit of 401(k) and similar plans.

The news led me to blurt out the headline you see above. (Apologies to my office mates with delicate sensibilities.)

In a meeting with the Senate Banking Committee, Cohn proposed getting rid of the ability to lower your taxable income by contributing to a 401(k).

On Thursday, White House spokesman Sean Spicer said that the 401(k) pretax benefit would go away. Later that afternoon, the White House issued a statement saying it wouldn’t.

So either it’s making up policy on the fly or there is a great deal of confusion in the administration.

It’s an important detail.

Here’s an example of how it currently works…

If you earn $75,000 per year and contribute $5,000 to a 401(k), your taxable income is lowered by $5,000. So not only does the $5,000 you contributed grow tax-deferred, but you pay taxes on only $70,000 in income, rather than $75,000.

For someone earning $75,000, lowering their taxable income by $5,000 results in an immediate $1,250 tax savings.

That’s a big deal.

For many investors, that lower tax bill is a key reason they participate in a 401(k) plan.

Why would members of the government remove an incentive to save for retirement when Americans are facing a retirement savings crisis? The only answer is…

They have in fact lost their %&*#! minds.

The average household with a 401(k) headed by a pre-retiree (someone 54 to 64 years old) has just $111,000 in retirement savings.

Sorry to say, but that ain’t gonna cut it.

The average person will spend more than that on just healthcare in retirement. That doesn’t take into account things that are kind of important like food and housing.

According to Fidelity, a couple retiring today will spend $260,000 on healthcare in retirement.

When you look at all households, including those without 401(k)s, the numbers are even more dire. The median retirement savings falls to a puny $12,000 for near retirees and just $3,000 for all working households.

The government should be doing whatever it can to incentivize people to save for retirement – otherwise we’ll all be paying for it later, with more expensive dollars.

Tax reform is supposed to be revenue neutral. So the federal government is desperate for funds to pay for the tax cuts. But taking away an incentive to save is as bad an idea as sending in law enforcement to drag a middle-aged doctor off of a United Airlines flight.

Actually, it’s much worse.

Of course, your representative doesn’t care. He or she has a congressional pension that will pay them an average of $41,316 per year. Plus, Congress has a fantastic retirement savings plan. It matches 100% of the dollars that they contribute. Or I should say we match 100% of the dollars that they contribute.

So if your congressman saves $5,000 in their retirement plan, you and I contribute the other $5,000. (Think about that the next time you’re putting in long hours at work.)

In the real world, less than one in 10 companies match 100% of employees’ contributions.

It’s tough for many working families to put money away for retirement. Removing an incentive and tax break will only lower the savings rate and cause the retirement savings crisis to worsen.

We need to find ways to encourage people to save, so that taxpayers aren’t bailing them out 10, 20 and 30 years from now.

Washington doesn’t have a great track record when it comes to good ideas. But taking away incentives to save for retirement is one of the worst.

Call your representatives and senators, and make them care. Let them know that not only do you want the pretax benefits of 401(k)s and other retirement plans to remain, but you will do everything in your power to make sure they are voted out of office if they go along with this asinine idea.

They don’t want to give up those cushy pensions and retirement plans, so they might just listen.

Good investing,


State Government TURD; Use Lottery to Fleece the Gullible

State governments that use the lottery to fleece the gullible or ignorant public are TURDs.  Remember, these are our fellow citizens who are most likely to be on the dole now and into retirement!  Very short sighted of the States but why should they care, they don’t play the lottery.  Wake Up People!  Here are the facts from The Oxford Club by Matthew Carr dated 2/7/2017 entitled The $70 Billion Tax That’s Killing U.S. Retirement:

crushed lottery ticket

Since 2002, the amount of money Americans spend on lottery tickets each year has increased 65.5%. In 2014, it topped $70 billion.

The amount Americans threw away on lottery tickets was $7.4 billion more than what was spent on all other forms of entertainment combined.

Research shows the poorer the American, the more they spend on lottery tickets. A lot more.  Americans who make $20,000 or less per year spend an average of $550 on lottery tickets per year.  That’s twice as much as any other income bracket.  Studies going back to the 1980s have shown that the poorest third of all U.S. households purchase half of all lottery tickets.

But the real devious part is this: States take 40% of every lottery ticket as revenue.  A 2009 study showed that in 11 states, lottery ticket sales brought in more revenue than corporate income taxes.  In 2014, lotteries contributed $21.3 billion to state budgets.

The government has a vested interest in selling Americans lottery tickets.  Not to mention the fact that any individual who wins $600 or more from a lottery is taxed 45% on that windfall.

And the odds of winning have steadily gotten worse. Since its inception in 1992, the Powerball lottery has reformulated the odds six times to make it harder to win. Originally, the odds of winning the Powerball jackpot were 1 in 55 million. Today, they’re 1 in 292 million.  That means, over the past 25 years, the probability of making money in the lottery has declined 81.2%.

The piece of this that troubles me most is 60% of all Americans buy a lottery ticket at least once per year, but more than half of all Americans have zero dollars in stocks.

The biggest misconception people have about the stock market is that owning shares of a company is like buying a lottery ticket… that it’s either going to pay off big or they’re going to lose everything.  This is one of the dumbest and most dangerous beliefs to have. And it couldn’t be further from the truth.  When you own shares of a company, you’re taking a stake in a business.  The company may succeed, or it may fail. Those are the risks. But inevitably, if a business does well, shares will eventually follow.  And if a business fails, there’s no obligation to hold shares down to zero. You can sell at any time, taking a gain or suffering a loss.

If you buy the S&P 500 {ETF: VOO or MFs: VFINX or VFIAX} and hold it for one day, you have a 54% chance of making money. The longer you hold it, the better your chances are of turning a profit. After 10 years, there’s a 94% chance you’ve made money. And at 20 years, there’s a 100% guarantee you’ve made money on your investment.  The worst performance of the S&P 500 over a 20-year period is 7% per year. And that was the 20-year period that ended in February 2009. The best is 18% per year, with those 20 years ending in March 2000.

That’s not a game of chance!