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Biden tax plan will not ‘tax your 401(k)’

November 3, 2020 GMT

CLAIM: Democratic presidential nominee Joe Biden “slipped up” and said he’s going to “tax your 401(k).”

AP’S ASSESSMENT: False. Biden has not proposed taxing retirement accounts known as 401(k)s. He has proposed equalizing the tax benefits for using such accounts. Tax experts say the proposed change would allow lower and middle income earners to benefit more than they had in the past from saving money in 401(k)s.

THE FACTS: Social media users in the lead up to the Nov. 3 U.S. election have been sharing several false claims about Biden’s tax plan.

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The most recent is a popular post on Facebook that falsely claims, “Biden slipped up and came out saying he’s going to tax your 401k. Are any of you EVEN paying attention?” 

Retirement accounts like 401(k)s and IRAs allow you to contribute funds into an account that can grow tax free, and taxes are only imposed when you withdraw the funds.

While it is true Biden has proposed reforms to how 401(k)s will be treated under the tax code, tax experts say the claim that he is taxing 401(k)s is false. 

“It’s inaccurate to say he’s going to tax your retirement plans,” Jason Oh, a professor specializing in tax law at University of California, Los Angeles School of Law, told The Associated Press.

Biden has proposed giving taxpayers a refundable tax credit rather than a deduction if they contribute to 401(k) retirement accounts. 

Oh said that would make the tax benefit of contributing to a 401(k) more equitable across income brackets, since current tax deductions are a greater benefit to higher income Americans. 

Heather Field, a tax law professor at University of California, Hastings College of Law, wrote in an email that tax credits would, “likely increase the tax benefit that low- and middle-income taxpayers get from future retirement savings.”

According to Field, if such a plan were to take effect, “A high-income taxpayer might get a smaller benefit from future retirement savings than they do under current law.” 

But she said that change “would not be properly characterized as ‘taxing your 401(k)’ because taxpayers would still be getting tax benefits for investing in retirement accounts; it is just that the mechanism for determining the amount of any taxpayer’s tax benefit would be changed.”

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Garrett Watson, a senior policy analyst at the conservative-leaning Tax Foundation, analyzed the impact of Biden’s proposal. According to his projections, for those in the 22% tax bracket or above, Biden’s proposal would “reduce the net benefit of new traditional contributions” to a 401(k), while the proposal would raise the net benefit for those in the 10% and 12% tax brackets.

Watson told the AP it is “misleading” to refer to the proposed change as a tax on 401(k)s.

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This is part of The Associated Press’ ongoing effort to fact-check misinformation that is shared widely online, including work with Facebook to identify and reduce the circulation of false stories on the platform.

Here’s more information on Facebook’s fact-checking program: https://www.facebook.com/help/1952307158131536