Fact Finders: A taxing question about 401k plans

SPRINGFIELD, Mo. (KY3) - Several of you are asking tax questions about the Inflation Reduction Act. One of our viewers asked, “Is it true that under the Inflation Control Act (Inflation Reduction Law), my 401K plan will now be taxed before using any of the funds?”

The Inflation Reduction Law includes many provisions. The areas range from addressing the cost of prescription drugs for the elderly to working on the government’s budget deficit.

It also includes a 1% excise tax on corporate stock buybacks by public companies. For example, if Apple wanted to buy back a bunch of its stock, it would have to pay that tax. Big Tech companies such as Apple, Facebook parent Meta, and Google parent Alphabet are some big names involved in stock buybacks.

Republican critics have argued that any tax on stock buybacks would hurt 401k plans in a trickle-down effect to you.

“What they’re trying to do is take more ownership of the company, take it back, but that can also raise the stock price. Because all of a sudden, there are fewer shares. So if you take, you know, a million shares out of circulation, it’s going to raise the price of the stock, because all of a sudden your share price is going to go up. So that can technically affect performance in your 401K.” Explained Shawn Gallagher of Piatchek & Associates. “But the 1% tax that would be something that Apple would have to pay for doing that transaction. And that could come back in the cost of your iPhone. (Paul) But not in your 401K? (Shawn) Not in your 401K.”

“It has no effect on your 401k. So it’s exactly the same as it was before the Act was passed as it was after. And that’s the same with the Roth IRA as well,” added Grant Rahmeyer of Rah Law. “What your caller was probably thinking of is in the Build Back Better plan, there were some small provisions for very high-income individuals that have exceedingly large retirement accounts, they were going to get like some sort of like 1% extra tax on there, that didn’t pass. It’s not happening. So, everyone’s 401k’s are just the same as they were prior to the passage of the act.”

Circling back to the viewer’s question; Is it true that under the Inflation Control Act (Inflation Reduction Law), my 401K plan will now be taxed before using any of the funds?” This is False.

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