Here are the pros and cons of flat tax: List of Pros of Flat Tax While there are many advocates for this system, there are also those that oppose such. In the US, this is implemented as a progressive tax system, which means that high-income earners would pay taxes at higher rates than low-income earners. I guess when we start withdrawing, we’ll spend hers first and by the time we need to switch to mine, maybe the law will have changed (or maybe we’ll be somewhere else by then–of course, we don’t have to be somewhere else entirely, just spend at least 6 months + 1 day somewhere with both better tax weather and winter weather - probably economic weather too since the Democratic plan to pay for the pension tax changes is to taxes on businesses).By definition, a flat tax system refers to taxation on household income at a uniform rate regardless of the level of income level. In my own case, my wife’s 401K from a university subject to match (for a long time, it was a 1:2 match!) and will all be tax free while none of my private 401K contributions were matched and all will be taxable. And, yes, you guessed it, of course, all public and 401K system have generous employer match provisions and private employers tend not to. But if you worked for an organization that didn’t match (or only matched small amounts or were self employed or made independent 401K contributions), you’re out of luck. So if you worked for an organization that matched your contributions, the matching money and the employee’s equivalent contributions would result in tax-free withdrawals.

What to do? The ‘ingenious’ idea is to make 401K withdrawals tax free but only for monies that were subject to employer match. There’s a twist though–Michigan’s public employees were largely been switched to 401Ks by Republican administrations in the 90s. Now that Democrats have retaken control of state government, they’re about to make their supporters’ pensions tax-free again. In the early 2000s, Republicans made pensions also subject to tax (understandable given that those receiving pensions now are mostly public-sector and union Democratic voters while Republicans tend to have 401Ks). In Michigan, pensions were once tax-free while 401K withdrawals were not.

Flat tax rate pros and cons