Is the Government Coming for Your 401(k)?

To say that the federal government has a spending problem is an understatement. The national debt hit $34 trillion at the end of last year, the budget deficit is expected to reach $1.6 trillion this year, and total budget deficits are expected to total $20 trillion over the next decade.

With the interest on the national debt alone expected to top $1 trillion this year, the federal government, rather than looking to decrease its spending, is looking to take in ever more money to spend. And it just might be looking for that money from US taxpayers.

It seems like every time the US government gets into spending trouble, rather than taking the blame itself, it blames the American people. And it has one big target in mind.

The Lure of Coming for Retirement Accounts

With the demise of pension plans, most Americans today are responsible for their own retirement savings and investments. To help them save, the US government introduced tax-advantaged retirement accounts to incentivize saving for retirement, first with individual retirement accounts (IRAs), and later with 401(k)s.

Today Americans have a total of $12.6 trillion saved in IRA accounts and $6.9 trillion in 401(k) accounts. And with most of that being accrued tax-free, that makes a tempting target for a government looking to drum up revenue.

The purpose of these accounts is for people to save and be responsible for their own retirement savings, rather than relying on the government and Social Security for their retirement income. But now that Social Security is once again at risk of becoming financially insolvent, suggestions are being floated once again to abolish 401(k) and IRA accounts to put Social Security back on a sound financial footing.

Where These Proposals Go Wrong

Going after retirement accounts, or removing their tax exemptions, in order to fund Social Security would undercut the entire purpose of their existence, which is to keep people from having to rely on Social Security. Not only that, but it would also be a massive slap in the face to people who have been saving and investing for years with the expectation that the government would keep up its side of the bargain.

If the exemptions on retirement savings accounts were to be removed, it would cause a seismic change in retirement savings, and could undermine any trust investors had with the federal government. It could also lead to significant changes in where American workers decide to invest their assets, or even if they decide to invest at all anymore.

The entire premise of these proposals is mistaken, with the authors of the most recent proposal deeming the tax protections afforded to 401(k) and IRA accounts to be a tax expenditure.

The implicit assumption in this way of thinking is that everything in the economy belongs to the government, so that not taxing something is actually the government spending its own resources, rather than allowing you to keep the things that belong to you.

According to that line of thought, not taxing 100% of your income is also a tax expenditure, so why not raise the income tax to 100% instead?

Aside from the impossibility and absurdity of doing that, the popular backlash would be incredible. Do the authors not think backlash against removing 401(k) and IRA tax exemptions would be just as huge?

For some reason, the authors paint those who save and invest in 401(k) and IRA accounts as wealthy. In reality, the truly wealthy don’t need 401(k) and IRA accounts. The median amount of savings in retirement accounts in 2023 was just $87,000, hardly what anyone would consider wealthy, and certainly not enough to retire on.

Even the average amount of retirement savings is only $333,940, still not enough to retire on. With the average person being expected to save at least $1 million by retirement just in order to maintain a decent middle class standard of living, it’s clear that rather than sheltering too much money in tax-advantaged retirement accounts, Americans aren’t sheltering enough money in retirement accounts.

What do people hope to gain by removing the tax-advantaged status of 401(k)s and IRAs? Rather than making retirement more fiscally sustainable for more Americans, such proposals would arguably make retirement even less financially viable for most people, and could provide significant disincentives to save for retirement.

But never underestimate the willingness of Congress to run with a bad idea and turn it into law. While it may seem far-fetched today to think that the government might want to crack down on IRA and 401(k) accounts, there’s no telling what might happen if the government ever gets in real financial trouble and decides that anything is fair game.

Can You Protect Yourself?

If you don’t have any money in IRA and 401(k) accounts, any government actions towards those accounts won’t impact you directly. But of course, not taking advantage of those tax-advantaged accounts can severely hamper your ability to save for retirement.

So what can you do?

One thing you can do is to be aware of your options when it comes to 401(k) and IRA accounts. And be prepared to protect your money against any potential threats.

Many people today have chosen to protect their tax-advantaged retirement accounts with precious metals like gold and silver. With a tax-free rollover or transfer from a 401(k), 403(b), TSP, IRA, or similar account to a gold IRA, you can move funds from your current tax-advantaged accounts into an IRA that allows you to buy physical gold coins or gold bars.

While any actions taken against 401(k) and IRA accounts would likely impact gold IRAs as well, one of the benefits of a gold IRA is that you can choose to take distributions either in cash or in physical gold, allowing you to maintain ownership of gold coins and bars even after you have distributed IRA assets.

Owning physical assets that you hold yourself can give you peace of mind in knowing that your assets are safe, secure, and can’t be taken away from you.

We all certainly hope that the idea of removing IRA and 401(k) tax exemptions is nothing more than idle talk or speculation from ivory tower academics. But you never know when the government might get tempted, or might suddenly find itself in need of more money.

If you’re worried about protecting your retirement savings, whether it’s from a spendthrift government, from high inflation, or from the threat of recession, maybe it’s time to give gold a look. Call Goldco today to learn more about gold could help you safeguard your financial future.