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Would a Financial Transaction Tax Affect Your 401(k)?

The potential tax would raise revenue without explicitly raising tax rates for lower- and middle-income households.

A previous version of this article appeared on Feb. 26, 2020.

Benjamin Franklin once wrote, “In this world nothing can be said to be certain, except death and taxes.” True enough, but he missed that the magnitude of the latter is anything but certain. Savvy investors already try to reduce their taxes by investing in tax-favored accounts such as 529s, IRAs, or 401(k)s and avoiding investments, such as active mutual funds, that pay out distributions in a taxable brokerage. A blanket financial transaction tax would completely scramble this math by taxing all financial transactions. It is also one of the few avenues a Joe Biden administration would have, should he win the upcoming presidential election, to raise revenue without explicitly raising tax rates for lower- and middle-income households. While much of the analysis on such a financial transaction tax focuses on the effect on high-frequency traders and market liquidity, there could be unintended side effects for retirement savers.

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