How the election will affect 401(k)s

This election may prove to be the 401(k) election, says Americans for Tax Reform (ATR) president Grover Norquist. ATR, in partnership with Rutledge Capital, has launched a new “2008 Election 401(k) Calculator,” with which retiring voters can “plug in” the value of their 401(k)’s under four different tax scenarios that have been presented throughout this year’s election season. These scenarios include:

• The Obama plan to raise the capital gains and dividends rate to 20 percent;
• The McCain plan to cut the corporate income tax rate from 35 percent to 25 percent and allow for immediate expensing instead of long depreciation;
• The Hill Democrat/Obama-in-the-Primaries plan to raise the capital gains tax to 28 percent and the dividends tax to 39.6 percent; and
• The ATR plan to cut the capital gains and dividends rate to 0 percent, cut the corporate rate to 25 percent, and allow for immediate expensing.

“Obama doesn’t have a single proposal that would increase anyone’s 401(k) plan. With the market taking a bite out of people’s nest eggs, the last thing taxpayers need is a stock market-killing hike in the capital gains and dividends rate,” Norquist said in a press statement.

According to ATR, while 401(k) plans are tax-advantaged and don’t pay capital gains and dividends taxes, raising and lowering those rates has the effect of making stocks more or less valuable. Since 401(k) plans hold stock mutual funds, a change in these key tax rates has a direct effect on a 401(k)’s bottom line.