New penalty on 401k plan withdrawals

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3 total messages Started by Tom Gross Wed, 27 Aug 1986 16:42

#952

Author: Tom Gross
Date: Wed, 27 Aug 1986 16:42

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>If anyone can explain any reason for there being a penalty for 
>withdrawing money from a savings plan, let me know.  
>Sounds like the investment banking 
>lobbyists got their way on this one.  They probably wanted to 
>make it completely illegal to withdraw funds from savings plans
>but didn't have enough money ^h^h^h^h^h^h influence to convince
>congress, so settled for this compromise :-).


    If they had lowered the marginal tax rates, as they did,
    WITHOUT adding a penalty for early withdrawal from 401K
    plans, everyone who had been shielding their income in 
    401k plans for the past couple of years could withdraw their
    money next year with considerably less exposure to taxes.  It may
    not be that 28%+15% will equal out to what your original tax would
    had been on your 401k contribution, if 401ks had never existed,
    but how much complexity do you want?

    Instead of calling a 401k plan a "savings plan", why don't you
    call it a tax shelter for rich people?  You talk as though the Feds
    have decided to tax withdrawals from piggy banks.  

    I might have cashed in mine (it was one of the first things I 
    thought of when they were talking about lowering the top rate to 
    27%), but it doesn't bother me that they out-flanked me on this 
    one.  Should it bother me?  I'm getting a TREMENDOUS tax shelter 
    this year and building a nice nest egg for the future; I don't feel 
    I need any more preferential treatment.  I guess if you think rich 
    people deserve more tax breaks, then adding the penalty on 401k 
    withdrawals would be a pisser.  
 

    Tom Gross
    Apollo Computer, Inc.
    Chelmsford, MA

Re: New penalty on 401k plan withdrawals

#954

Author: Bill Tuthill
Date: Wed, 03 Sep 1986 19:52

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> Tom Gross writes: 
> 
>  It may not be that 28%+15% will equal out to what your original tax
>  would had been on your 401k contribution, if 401ks had never existed,
>  but how much complexity do you want?

Where did this 15% figure come from?  Yesterday's Wall Street Journal
(September 2nd) pegs the penalty at 10%, the same as for an IRA.

Bill Tuthill

Re: New penalty on 401k plan withdrawals

#955

Author: LocklearLB
Date: Wed, 03 Sep 1986 20:40

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In article <2fc05008.2a75@apollo.uucp>, tbg@apollo.UUCP writes:
> 
> 
> >If anyone can explain any reason for there being a penalty for 
> >withdrawing money from a savings plan, let me know.  
> >Sounds like the investment banking 
> >lobbyists got their way on this one.  They probably wanted to 
> >make it completely illegal to withdraw funds from savings plans
> >but didn't have enough money ^h^h^h^h^h^h influence to convince
> >congress, so settled for this compromise :-).
> 
> 
>     If they had lowered the marginal tax rates, as they did,
>     WITHOUT adding a penalty for early withdrawal from 401K
>     plans, everyone who had been shielding their income in 
>     401k plans for the past couple of years could withdraw their
>     money next year with considerably less exposure to taxes.  It may
>     not be that 28%+15% will equal out to what your original tax would
>     had been on your 401k contribution, if 401ks had never existed,
>     but how much complexity do you want?
> 
>     Instead of calling a 401k plan a "savings plan", why don't you
>     call it a tax shelter for rich people?  You talk as though the Feds
>     have decided to tax withdrawals from piggy banks.  
		.
		.
		.
> 
>     Tom Gross
>     Apollo Computer, Inc.
>     Chelmsford, MA

The reason that the original poster talked about savings plans is because she
MEANT savings plan as opposed to 401k plan.  Here at AT&T we have a 401k plan 
to which we can contribute pre-tax dollars and a company savings plan to which 
we can contribute after-tax dollars.  I assume that this situation also exists 
at other large compnies. The MONEY magazine article that the original poster 
referred to talked about penalizing early withdrawals from 401k plans AND 
company savings plans. 

It doesn't matter to me that early withdrawals from 401k plans will be 
penalized since I will use mine to replace my IRA. But the talk of penalizing
withdrawals from company savings plans really irritates me.  Why should
I get penalized for using my savings plan the way it is intended to be used?
What is an early withdrawal from a savings plan?!?!?!?

Never having heard of this provision until the MONEY article, the only 
rational explanation that I can think of is that the MONEY magazine
article used "401k" as a synonym for "savings plan" in the same way the Tom
used it in his posting.  I certainly hope that this is the case.  Can anyone
shed some light on this subject?

Barry Locklear
AT&T Information Systems Labs
Denver, CO

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