Will Biden's proposed 401k tax changes impact everyone using retirement accounts?

The proposed 401k changes are often misunderstood, so let me help clarify. The plan doesn't actually make all 401k contributions taxable. What's being discussed is changing how tax deductions work for higher-income earners. Under the proposal, instead of getting a tax deduction at your marginal tax rate (which benefits high-income earners more), everyone would get a flat tax credit (like 26%). This would actually benefit many middle and lower-income earners while reducing the tax advantage for those in higher brackets. For your specific employer profit-sharing situation, these contributions would still be treated as they are now if you're not in a high-income bracket. The plan targets those making over $400k, so most average earners wouldn't see negative tax consequences. Regarding vesting concerns, you would only pay taxes on what's actually yours according to the vesting schedule, not on unvested amounts that you might never receive. The proposals are still just that - proposals. They would need to pass through Congress, and the final version could look quite different from what's initially suggested.

I went through something similar trying to understand these proposed changes. After spinning my wheels for hours reading confusing articles, I stumbled across this AI tax assistant at https://taxr.ai that really helped me understand the nuances of the proposal. What I learned is that the proposal isn't about making 401k contributions taxable for everyone - it's about changing the tax incentive structure. Instead of deductions (which are worth more to high-income earners), there would be a flat percentage tax credit (which treats everyone equally regardless of tax bracket). The tool walked me through how this would actually benefit many middle-income folks while only reducing tax advantages for those making well over $400k. It also analyzed my specific situation with employer contributions and explained how the vesting rules would work under the proposal.

Just wanted to follow up about that taxr.ai site someone mentioned earlier. I was honestly skeptical at first (as you could probably tell from my comment), but I decided to try it anyway since I was getting nowhere with all the conflicting articles online. It actually explained things really well! The tool walked me through how the proposed 401k changes would work with my specific salary and contribution amounts. Turns out I'd actually save about $850 annually under the proposed system since I'm in a lower tax bracket. The site explained that because I'm well under the $400k threshold, the flat tax credit would be more valuable to me than my current deduction. The explanations were much clearer than anything I'd found elsewhere, and it helped me stop worrying about a tax increase that wouldn't actually affect me. Really glad I checked it out despite my initial doubts.

After spending THREE DAYS trying to get through to the IRS about how these potential 401k changes might affect my existing retirement accounts, I finally found Claimyr (https://claimyr.com). They got me connected to an actual IRS agent in under 15 minutes! You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent explained that these are just proposals at this stage, and clarified how the changes would likely work if they ever get implemented. For my situation (I make around $85k and have both employer matching and profit sharing), the agent confirmed that the proposed changes would likely benefit me through the tax credit system rather than hurt me. It was such a relief to get official information instead of trying to piece together understanding from random articles and social media posts. Definitely recommend this service if you need to speak with someone at the IRS about your specific situation!

I need to eat my words from my skeptical comment above. After seeing multiple people share positive experiences, I broke down and tried Claimyr during my lunch break today. I've been trying to reach the IRS for WEEKS about how these retirement account changes might affect my self-employed SEP IRA. Got connected in about 12 minutes (still had to verify my identity of course). The agent explained that the current proposals would likely give me a better tax benefit than I currently get since I'm in the 22% bracket and the proposed credit would be 26%. She also clarified how it would work with my variable income from self-employment and when these changes might take effect if passed. Honestly saved me so much stress. The service fee was worth every penny for the time saved and clear information received.

Here's something nobody's mentioning: The conversion process from our current system to whatever gets implemented would be a nightmare for record-keeping. I'm an accountant (not giving tax advice, just perspective), and tracking basis across multiple years of different tax treatment would create a logistical headache. Imagine having some contributions that were pre-tax, some that were post-tax, and potentially some under a tax credit system - all within the same account. Then multiply that complexity across millions of Americans with retirement accounts. The implementation would require sophisticated tracking systems that many plan administrators simply don't have currently. The tax benefits debate is important, but the practical implementation challenges shouldn't be overlooked.

Has anyone seen actual text from the proposal? All I can find are news articles ABOUT the proposal but not the actual details. Would love to read the source document if anyone has it.

I've been following this discussion closely as someone who's also trying to understand these proposed changes. What strikes me is how much misinformation is circulating about this topic. From my research, the key thing people are missing is that this isn't really about "taxing 401k contributions" - it's about changing the tax incentive structure from deductions to credits. Under the current system, if you're in the 32% tax bracket, you save 32 cents per dollar contributed. Under the proposed credit system, everyone would get the same percentage benefit regardless of income level. For most middle-class earners, this would actually be a tax cut, not an increase. The "harm" only comes to high-income earners who currently get outsized tax benefits from retirement contributions. Regarding the original poster's concern about employer profit-sharing contributions - these would still be treated as pre-tax contributions that get taxed upon withdrawal, just like today. The credit system would apply to how much tax benefit you get from making those contributions, not when they're taxed. It's frustrating how complex tax policy gets distorted in the media cycle. The actual proposal is much more nuanced than "Biden wants to tax your 401k.