How a Trump or Biden presidency could affect your retirement plan

How the presidential election could affect your retirement plan

The radically different platforms of President Trump and his Democratic opponent, Joe Biden, are no less divergent on issues impacting the finances of everyday Americans.

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Their approaches to retirement benefits and Social Security could alter the way Americans save and spend their money for the next four years.

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Here's what you need to know about where the two candidates stand:

401(k) plans

A frequently overlooked part of Biden's platform would upend the preferential tax treatment of retirement accounts like 401(k) plans — a change that industry experts warned could force some small companies to cut those benefits.

Biden has vowed to convert the current deductibility of traditional retirement contributions into matching refundable credits for 401(k)s, IRAs and others.

The proposal from the former vice president is intended to level the playing field and boost saving among low-income earners. But industry experts cautioned that by reducing the benefits that higher earners receive, the Biden campaign may increase the likelihood of businesses abandoning the retirement benefits altogether.

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Under current law, workers contribute pre-tax dollars to the accounts, reducing their annual taxable income. (When the funds are eventually withdrawn in retirement, then the money is taxed). But the system tends to disproportionately benefit wealthier earners since deductions are more valuable the higher one's income bracket is.

For instance, a taxpayer in the top income bracket would receive a $37 benefit for every $100 contributed to a retirement account. By comparison, a taxpayer in the bottom bracket would get just a $10 benefit in exchange for the same $100 contribution.

The former vice president has pledged to eliminate such deductions and replace them with flat tax credits for each dollar saved. The campaign has not specified what the percentage would be, but the Tax Foundation estimated that a 26% credit would be roughly revenue-neutral, something the Biden campaign is aiming for.

That would mean regardless of their income, taxpayers who contributed $100 to a retirement account would receive a $26 benefit.

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"If you take the tax deduction away and reduce the tax benefit, without also addressing the nondiscrimination rules, you've blown up the bargain," Brian Graff, CEO of the American Retirement Association, told FOX Business.

Trump has not laid out a specific proposal for retirement benefits but has been quick to correlate stock market gains to increases in 401(k) balances.

“When the stock market goes up, that means jobs,” Trump said during his first debate with Biden. “It also means 401(k)s.”

Social Security 

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Trump has emphasized on his widely followed Twitter feed and at rallies around the country that he would protect Social Security, a critical issue with retirees.

Over the summer, Trump signed an executive measure temporarily deferring the 6.2% payroll tax, which is used to fund Social Security, for workers earning less than $104,000 annually, or $4,000 biweekly, beginning Sept. 1 through the end of the year, at which point employers are obligated to resume collecting what is owed.

At the time, he pledged to "terminate" the tax so that workers are not required to pay back the money at a later point.

"If I'm victorious on Nov. 3, I plan to forgive these taxes and make permanent cuts to the payroll tax," Trump said. "I'm going to make them all permanent."

If Trump eliminated the payroll tax without offering a replacement revenue source, the Social Security trust fund could be depleted by 2023, according to an analysis from the chief actuary of the Social Security Administration.

Biden, meanwhile, has promised to increase Social Security checks for Americans, including raising monthly payments for seniors who've been receiving benefits for at least 20 years. The former vice president would also set a minimum benefit – at least 125% of the poverty level – for those individuals who worked at least 30 years.

Additionally, he says he would seek to shore up the fund by installing a new tax on higher earners.

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Under existing law, employees and employers split a 12.4% payroll tax on wages below an annual maximum (in 2020, it's $137,700). The levy, which shows up on paystubs as a FICA tax, is used to fund Social Security.

But Biden has pledged to subject wages above $400,000 to the 12.4% payroll tax, creating a so-called "donut hole" for earnings between $137,700 and $400,000, which would be exempt.

The Social Security Trust Fund could be depleted by 2031 as a result of the coronavirus pandemic and subsequent economic downturn, according to September projections by the Congressional Budget Office. The nonpartisan agency said in the report that the Social Security fund could plunge from $2.8 trillion to $533 billion in 2030. It estimates the fund would run out the following year.