Fiscal Cliff: Why Congress Might Have to Mess with the 401(k)

One of the earliest fears about tax-favored savings accounts like IRAs and 401(k) plans was that when this pool of savings grew large enough Congress would not be able to resist tapping it to help solve the nation’s debt problems. We’re about to find out if those fears—persistent for three decades—have been justified. Everything including the sacred mortgage deduction is on the table as lawmakers wrestle with the fiscal cliff, a year-end avalanche of scheduled spending cuts and tax increases. With a combined $10 trillion sitting in IRAs and 401(k) plans, retirement accounts make a juicy target. Much of this money has never been taxed, and under current law never will be. To maintain this savings incentive the government “spends” $100 billion a year in the form of tax breaks to those who stash money in these kinds of accounts. Now, a new study suggests this tax incentive does ...