Why is retirement packages from companies that take you 30-35 years to earn taxed as regular income?

Question

We give all kind of meaningful tax breaks to the very wealthy in this country but cannot seem to give a break to the working stiff who worked all their lives to accrue this small benefit. I think congress should consider special tax rates on this income.

I'm not talking about the 401K Plan. I'm talking about the Retirement Plan the company offers.

Answer 1

the other answer to this is that Congress has promised so many benefits to such a huge portion of the population that they need the revenue from taxing your retirement income.

After all, the net value of Medicare isn't taxable to the senior citizen who receives it. Low income elderly people do not pay income taxes on their Social Security checks.

Both programs are statistically unsound -- any ordinary life insurance company that made their promises would have been closed by the state insurance regulator as unsound decades ago.

But, since these are government programs, they continue on their merry way, AND need ever more and higher taxes to pay the promised benefits.

So, you have to pay.

***
Btw, the marginal tax rate on the 'very wealthy' is already two or three times your tax rate. Even if you confiscated every dime of income beyond $100,000 per person per year, you'd still not fill the holes in SS and Medicare.

So, you have to pay. [God forbid that the government should cut benefits that they've never been able to pay for since day 1.]

Answer 2

If it is a defined benefit pension then it is deferred payment. You are taxed when you receive the money at that rate, so if you are in a lower tax bracket you pay less taxes. Social Security is taxed. 401K is taxed. I am not wealthy, but I know the very wealthy pay taxes, a lot more than we pay. Do not be consumed by class warfare. The enemy is congress. They hold their power because they control the money. Our money.

Answer 3

It's taxed as regular income because that's what it is. If it's in a 401K, it has at least grown tax-deferred, so you got some benefit from compounding.

You can write to your congressman and suggest that some kind of break be introduced.