The 401k tax code has become a bait and switch. It is set up to benefit the government where they get to play the market with the individual, and collect more in taxes from the individual at the end of their career than they would ever been able to collect had the individual simply paid the taxes on the income used to contribute.
To help existing 401K holders and to encourage Americans new to the workplace to plan for retirement via pre-tax dollars, I submit the following changes to the current 401K tax code:
- Contributions will still be made with pre-taxed income
- Qualifying distributions should remain the same.
- Upon qualified distributions back to the holder, only the portion of contributions will be taxed.
- Gains will be not subject to tax.
- Gains will not count as Income which could affect Social Security benefits and tax brackets.