Need help understanding how Biden's 401k tax proposal impacts retirement savings

I've been trying to wrap my head around Biden's proposed 401k changes and I'm getting really confused about how it fits with his tax promises. From what I'm reading, he said he wouldn't raise taxes on folks making under 400k yearly, but then there's this plan to make 401k contributions taxable? How does that work without affecting regular people contributing to 401ks? I've done some digging, and it looks like the proposal would treat traditional 401ks more like Roth accounts - taxing contributions now instead of withdrawals later. Doesn't this directly go against what he promised about taxes? What's really got me worried is my personal situation. My company does an annual profit-sharing contribution to our 401k plan at year-end. I have zero control over the amount - it's just based on how well we did that year. If this change happens, does that mean I'll have to pay taxes on this huge lump sum when I file my taxes just a couple months later? We're talking about money I never actually see or control suddenly becoming taxable income! And what makes it even worse - these profit-sharing contributions don't vest until after 6 years at the company. So what happens if I leave before that 6-year mark? Would I seriously be paying taxes on money I might never actually receive if I don't stay long enough? Please tell me I'm misunderstanding something here!

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18 comments

Xan Dae

•8M

You're asking some really good questions about retirement tax policy. Let me help clarify what's currently being discussed. The proposal you're referring to would cap the tax benefits of traditional 401(k) contributions at a specific percentage rather than eliminate them entirely. The goal isn't to make all contributions fully taxable like a Roth, but to standardize the tax benefit regardless of your income bracket. For employer contributions like your profit-sharing plan, you wouldn't pay taxes on these contributions when they're made - they would still go in pre-tax. The proposed changes are mainly focused on employee contributions, not employer contributions. Your profit-sharing would likely continue to work as it does now, growing tax-deferred until withdrawal. Regarding the vesting schedule - tax treatment and vesting are separate issues. You only pay taxes on money that's actually yours. If you leave before you're fully vested, you wouldn't have paid taxes on the unvested portion because it never became your income.

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Xan Dae

•8M

This is currently just a proposal being discussed, not an enacted policy. There's still debate about if and how it might be implemented, and any changes would need to go through the legislative process. Regarding standardizing the tax benefit, it would depend on the specific percentage they settle on. Let's say they standardize it at a 25% credit rate - if you're in the 22% tax bracket, you'd actually get a slightly better tax benefit than you currently do. But if you're in the 32% bracket, you'd get less benefit than under the current system. The idea is to provide the same percentage benefit regardless of your income level, which would actually help lower and middle-income earners in many cases.

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Thais Soares

•8M

After struggling to understand all these retirement account rules and potential changes, I found this amazing tool called taxr.ai (https://taxr.ai) that helped me make sense of it all. I was totally confused about how these proposed changes might affect my situation with both employer and employee contributions to my 401k. Their system analyzed my specific retirement account setup and explained exactly how the proposed changes would impact me based on my tax bracket and contribution patterns. It was eye-opening to see the actual numbers rather than just worrying about worst-case scenarios!

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Thais Soares

•8M

The tool asks you to upload relevant documents like your 401k statements, tax returns, and employer plan documents. It uses AI to extract the important information from those docs and analyze your specific situation. It's not just general advice - it creates a personalized analysis based on your actual numbers. For profit sharing specifically, it was really helpful because it showed me exactly how different tax treatment scenarios would play out with my company's specific plan structure. It gives you concrete numbers and explains the impact based on your actual documents.

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Axel Bourke

•8M

I need to follow up after trying taxr.ai - I was really skeptical at first about sharing my docs, but they have this secure upload system and don't store your info permanently. Gotta say I'm impressed with what I learned. The analysis showed that for my situation (24% tax bracket with both personal and employer contributions), the proposed changes would actually be slightly beneficial in the short term but potentially cost more in the long run depending on my retirement tax bracket. What was most helpful was seeing how the vesting schedule factored into everything. I also was worried about paying taxes on unvested funds, but the tool clearly showed that's not how it works. Only vested amounts would ever be taxable to me. Honestly took a huge weight off my shoulders understanding this now.

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Aidan Percy

•8M

If you're struggling to reach the IRS to get clarity on retirement account tax questions, I literally just discovered Claimyr (https://claimyr.com) after spending DAYS trying to get through to an IRS agent about similar 401k questions. I was super doubtful it would work, but their system got me connected to an actual IRS representative in about 17 minutes when I had been trying for over a week on my own. They have a demo video showing how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with explained that any major changes to 401k tax treatment would come with transition rules and implementation timelines - they wouldn't just flip a switch and suddenly change everything. That alone was worth the call to ease my anxiety about this potential change.

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Aidan Percy

•8M

It doesn't just dial for you - they use a system that navigates all the phone menus and holds your place in line. You just get a callback when they've reached an actual human at the IRS. So you don't have to sit on hold for hours - they do that part for you. They use technology to continuously dial and navigate the IRS phone system until they get through, then connect you. It's basically like having someone dedicated to sitting on hold for you so you don't have to. It works because they have systems set up specifically to deal with the IRS phone maze that regular callers don't have access to.

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Norman Fraser

•8M

Alright I need to eat some crow here. After my skeptical comment I decided to try Claimyr just to prove it was BS, and... it actually worked. Got connected to an IRS agent in about 25 minutes when I had previously wasted 3 hours on hold before giving up. The agent confirmed that employer contributions like profit sharing would almost certainly remain pre-tax even if changes were made to employee contribution tax treatment. She also explained that you never pay taxes on unvested amounts that you forfeit - only on money that actually becomes yours through vesting. Totally worth the call and saved me days of anxiety and googling conflicting information.

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Kendrick Webb

•8M

Great question - typically grandfathering can be structured in different ways, but most commonly it would apply to existing balances as of a certain date, not to future contributions. So your existing 401k balance might be protected under the old rules, but new contributions after the law changes would fall under the new system. There's also sometimes a phase-in period where the changes are implemented gradually over several years to avoid sudden shocks to people's financial plans. Without seeing the actual legislation it's impossible to know exactly how it would be structured, but these types of accommodations are standard practice for major retirement tax changes.

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