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Here is a good link with further explanation and more links to information on the new bill.

Do you think this bill is another one aimed more toward the rich?

I'm 20 years old, so I know this bill (if enacted) will affect my future and I want to know if it will be more of a benefit (for everyone, not just me).


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Certain elements are indeed characterizing this bill as "geared towards the rich"; however, a couple of points are in order.

1. Many of the "increased" limits are just restoring these amounts back on an inflation adjusted basis (and in many cases not even close) to where they were in the mid-80s before Congress cut back these limits to take care of the deficit. As an example, the $2,000 IRA limit hasn't changed since 1978.

2. From a small employer standpoint, increasing these limits also increases the chance that some form of plan will be established to cover their employees. If the carrot of increased contributions for the owner has to be extended, so be it. (Remember, sponsorship of a qualified plan is not a requirement. If rules are restricted to the extent that the owner would be better off not having a plan at all and just investing the after-tax proceeds of what he was prepared to contribute in aggregate, what do you think the odds are of his employees seeing anything?)

You're 20 years old right now, and it's good that you're focusing on this issue. Remember though, one constant is that everyone gets older and your focus as to what is "fair" will change over time.

BTW, I'm a pension actuary and have been in the field since 1983, primarily focusing on small employer plans. I've lived through the negative wave of more restrictive bills starting with TEFRA back in 1982, the Tax Reform Act of 1986, and OBRA '93, and the resultant shutdown of plans during that time. Having Congress finally taking steps to encourage plan sponsors is refreshing and may help to prop one of the "three legs" of retirement savings (Social Security, Private Plans, and personal savings).
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Thanks for your input, it makes alot more sense now.

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I don't think this bill is particularly aimed at "the rich", whoever they are (although anyone who could benefit from it will use the benefit, if their tax advisor is any good). I think the purpose of the bill is so that middle-class people will say "Wow, the government is letting us pay less taxes, how nice of them, let's re-elect the incumbents" and ignore other things the government is doing that take away much more than they're giving.
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i'm somewhat perplexed as to how this bill can be said to be aimed more towards the rich.

although "the rich" can, presumably, contribute more actual dollars, up to the new and improved limits, as a whole, the percentage of their salaries transferred into these various retirement accounts would be less than "the poor."

in actuality, for example, a couple aspects that oppose such a proposition lie in the fact that both (1) the non-deductability of traditional ira contributions and (2) the phase out of roth ira contributions appear to remain in force. these only apply to "the rich."

in any event, imho as a non-expert, as a general rule, any time the government allows you to defer (or eliminate) taxation, the benefit to everyone should be apparent.
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Why? The sides categorizing this as aimed towards the rich are the same folks running out the Lexus v. the muffler dog n' pony show earlier on the tax bill. Enough said...
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I'd say it is geared towards those with high incomes -- the current limit of $10,500 for 401k and 403b plans is further limited with 15% and 20% limits, respectively, of your gross income.

This means for 2001 that if my employer has a 401k plan, I have to earn at least $70,000 in order to be able to contribute the maximum ($52,500 for 403b).

If the contribution percentage does not change (or is eliminated) then this means for the following years:

Year  Max.       401k     403b
2001  $10,500  $ 70,000  $52,500
2002  $11,500  $ 76,667  $57,500
2003  $12,500  $ 83,333  $62,500
2004  $13,500  $ 90,000  $67,500
2005  $15,000  $100,000  $75,000

I'd say it favors the "rich"...


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Actually, one component of the new bill may greatly assist the rank and file employee trying to sock away as much as he can in a 401(k) plan. Under current law, total allocations on behalf of an employee (including employee deferral, employer match, and discretionary profit sharing contribution by Employer) are limited to the lesser of $35,000 and 25% of compensation. So let's say we have a diligent employee making 40,000 who puts away as much as his plan lets him (say 15%). The plan also provides for a 5% match and maybe the employer decides to put in a discretionary profit sharing contribution of 10%. Well, under current law something has to give because total contributions for this employee are in excess of 25%. BTW, the 415 limit is why an employee making $30,000 couldn't put away the full $10,500 in a 401k plan (begging the fact that this a pretty unique individual who could defer so much on so little income).

The new law would replace the 25% of compensation threshold with a 100% of compensation threshold under IRC 415(c). So, no, your analysis of salaries required to defer the maximum will no longer hold true (note plan documents obviously will change in the future to take into account this change - and I would seriously doubt that any plan wouldn't amend to allow higher deferral percentages by non-highly-compensated employees - it only helps the plan in ADP testing).
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