quinta-feira, 17 de dezembro de 2020

Version 2.227

Congress, it appears, is pretty close to reaching an agreement on another stimulus package. I wonder if a final version gets announced before the run off elections in Georgia or if we'll stay in a low simmer until after. There is lots of chatter about what a President Biden should do: some want him to forgive student loans, others are talking about changing the tax structure of 401k accounts and switching them to post-tax accounts, similar to Roth accounts.

In a traditional 401k, people are allowed to set aside income for retirement pre-tax and they pay taxes on this income and any appreciation when they withdraw the money, thus the payment of taxes is deferred until retirement. If the money is withdrawn before a certain age, then besides the tax, the person must pay a 10% penalty. In a Roth IRA or Roth 401k, people have already paid taxes on thr income they save, so no other taxes are owed, not even on the money generated in the account.

Such a switch would give the current administration a big boost in tax revenue, but it would also have tremendous implications for savers, so I am really curious to see what will come out of it, as tax-deferred accounts are rather popular.

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