Clark Howard

Clark Predicts Traditional 401(k)s, IRAs Will Cease To Exist Within a Decade

Money expert Clark Howard predicts that traditional 401(k) and traditional IRA accounts will go extinct in the next 10 years.

That's quite the prediction. But Clark isn't alone in his assertion and is well-read on the subject. In fact, a recent Bloomberg opinion column ran with this headline: "Your 401(k) Will Be Gone Within a Decade."

It’s no secret that Social Security and Medicare aren’t sustainable on the current trajectory. What will the United States do with taxes in the future, as well as all huge government-related programs?

As of now, traditional 401(k) and traditional IRA retirement vehicles allow tax-deferred investments. You can put money into a traditional workplace 401(k) in your early 20s, reduce your taxable income and not pay any taxes until you pull out the money in retirement perhaps four decades or more later.

That’s a long time for Uncle Sam to wait to wet its beak in the form of taxes. Especially when it gets tax income immediately with Roth 401(k) and Roth IRA accounts.

Why Traditional 401(k) and IRA Accounts ‘Likely’ Will Vanish in the Next Decade

Will the government kill the traditional 401(k)? And could the government abscond with people’s retirement funds?

That’s what a listener recently asked Clark.

Kevin in Utah asked: "Clark, I've been reading articles that they're talking about seizing our 401(k) funds to save Social Security. Do you know anything about this? If there is any truth to this what do you suggest we do to prepare for this?"

What Kevin is asking may seem outlandish. But governments have swooped in and taken retirement money from government programs in developing countries and Third World countries.

Clark says that the idea that the U.S. may nab investment account funds to pay for the deficit, Social Security and Medicaid are “scarelines” — his label for clickbait headlines designed to draw eyeballs — and not a real threat.

“The rule of law in the United States is strong enough that I’m not worried about that at all,” Clark says. “The Feds aren’t going to run off with your 401(k). But the odds that traditional 401(k)s and traditional IRAs will cease to exist – the odds of that? Pretty good.”

Money in traditional 401(k) and IRA plans represent “tax time bombs” for people. Because the IRS ultimately taxes every dollar in there, including all investment earnings. So there’s no incentive for the federal government to seize those funds.

Contributions already in those accounts will continue to exist, Clark says. And those funds will continue to grow tax-deferred.

Clark’s Prediction: Enjoy Those Traditional 401(k) Plans While You Can

Clark uses language like “likely” and “I think that will happen” to describe the removal of traditional retirement investment accounts in the future.

“Why would the Feds go to a system where it’s all the equivalent of Roth? Because right now, the benefits of a traditional 401(k) and a traditional IRA are overwelmingly tilted toward the highest-income earners,” Clark says.

“They get the big upfront tax benefit. And at the same time, the government is starved for the funds today to pay for the deficits today in Social Security and Medicare.

“The government needs to unfortunately tax us more for Medicare or Social Security. Or cut the benefits. Or a combinatoin of the two. And one of the ways that’s a backdoor tax increase is to eliminate traditional 401(k)s and traditional IRAs.

“So I think that will happen. That will happen.”

Regardless of your income, in the future Clark envisions, you'd only have the option to contribute to a Roth 401(k) in the workplace. And the income limits to contribute to a Roth IRA may change if traditional IRAs are no longer an option.

“When would any of this stuff happen? Well, Congress can’t even pass non-controversial things right now. And until we have a non-dysfunctional Congress, no changes like this would happen anyway,” Clark says.

“But I think it’s likely it will happen potentially later this decade.”

Final Thoughts

Clark agrees that traditional 401(k) and traditional IRA accounts will not be an option in a decade. It will serve as a sort of tax increase as the government removes the option to defer taxes on retirement contributions.

The Feds are going to be starved for cash to fund Medicaid and Social Security as well as the national deficit. This is one solution that could help make progress on that front. Although Clark warns it likely will take more than just that move.

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