Author Topic: Apparently state sponsored 401ks are a discussion in several states. Thoughts?  (Read 4447 times)

MrUpwardlyMobile

  • Pencil Stache
  • ****
  • Posts: 515
    • The Upwardly Mobile Life

TheAnonOne

  • Handlebar Stache
  • *****
  • Posts: 1584
If your job doesn't offer a 401k you have what options? An IRA that EVEN PEOPLE WITH 401k-s have?

It seems insane to me that the 401k 18k deduction isn't available to everyone.

therethere

  • Pencil Stache
  • ****
  • Posts: 796
I used to not think twice about 401k's as I assumed everyone had them. Then my DH got a job offer and last minute I told him to ask about the 401k just to have the paperwork. The prez replied in a detailed email and said 401k's cost too much money, and by using the IRA instead and you can get close to the 18k and upped the salary a tiny bit to compensate...... Yeah, I was pretty upset. No 401k means more than 6k extra in taxes every year for us. It's also increasing our MAGI and putting us in the phaseout ranges of some deductions. It sucks.

Now my mind is changed. I don't understand why people with w2 jobs that don't offer a 401k aren't able to create their own (like a self employed 401k can). It's crazy to me, but the fact that it likely doesn't apply to a ton of people (maxing all retirement accounts AND in a job without 401k) means it will likely never get changed.

sherr

  • Handlebar Stache
  • *****
  • Posts: 1016
  • Age: 35
  • Location: North Carolina, USA
If your job doesn't offer a 401k you have what options? An IRA that EVEN PEOPLE WITH 401k-s have?

It seems insane to me that the 401k 18k deduction isn't available to everyone.

Yeah, my wife was in that position for a while. If your company doesn't offer a 401k there's nothing you can do about it.

https://www.marketwatch.com/story/can-a-state-sponsored-401k-plan-expand-access-to-retirement-savings-2018-05-30

Apparently state sponsored 401ks are a discussion in several states. Thoughts?

According to the article that plan would only apply for small ( < 20 employees) nonprofits, AND the company has to opt-in first. So basically it's never going to make a difference.

The real solution to the problem is simply to allow people to set up their own if their company doesn't provide one.


FIRE@50

  • Pencil Stache
  • ****
  • Posts: 538
  • Age: 42
  • Location: Maryland
I would not support my tax dollars being used for the state to sponsor a retirement account that anyone can get for free from Fidelity or Vanguard.

I would support raising the maximum contribution limit of IRAs to be in line with 401k's. Anyone know why that gap exists in the first place?

jim555

  • Handlebar Stache
  • *****
  • Posts: 2321
They should say everyone has the option to do 401ks or IRAs up to the max for both.  That way people could get out of those crappy 401ks with high fees and put that money into a their own IRA instead.

Fishindude

  • Handlebar Stache
  • *****
  • Posts: 2411
I would not support my tax dollars being used for the state to sponsor a retirement account that anyone can get for free from Fidelity or Vanguard.

I agree.
Your government already has its hands in, and has screwed up too many other things they have no business being involved in.
Leave the investing business to the pros in the private sector.

terran

  • Magnum Stache
  • ******
  • Posts: 2880
There's already an account that anyone can contribute to for tax advantaged retirement savings. It's called an IRA. They should just increase the limits for that and get rid of 401(k)'s entirely or combine the limits. As others have said Vanguard, Fidelity, and others are happy to give out free IRAs, so why reinvent the wheel.

AZDude

  • Handlebar Stache
  • *****
  • Posts: 1298
Seems like the simple answer here would be for the gov't to just up the maximum tax advantaged account contribution to ~$26,000(18K for 401(k), 5,500 for IRA, 2,500 for HSA) and let you decide how to divvy up.

That way a person who does not have a 401(k) at their job, or someone whose 401(k) sucks could just put $26,000 into an IRA.

I know, I know... but then what about all the finance companies that bribe their way into having their expensive investment vehicles being the only options for some medium sized company's 401(k)? Well, someone has to sacrifice.

MrUpwardlyMobile

  • Pencil Stache
  • ****
  • Posts: 515
    • The Upwardly Mobile Life
Seems like the simple answer here would be for the gov't to just up the maximum tax advantaged account contribution to ~$26,000(18K for 401(k), 5,500 for IRA, 2,500 for HSA) and let you decide how to divvy up.

That way a person who does not have a 401(k) at their job, or someone whose 401(k) sucks could just put $26,000 into an IRA.

I know, I know... but then what about all the finance companies that bribe their way into having their expensive investment vehicles being the only options for some medium sized company's 401(k)? Well, someone has to sacrifice.
. Thatíd work for me if the IRA was deductible and didnít phase out.

My IRA isnít deductible and I donít have access to a 401k.  The best I can do is a backdoor Roth, which doesnít help as much right now as a 401k would.

Schaefer Light

  • Handlebar Stache
  • *****
  • Posts: 1325
Seems like the simple answer here would be for the gov't to just up the maximum tax advantaged account contribution to ~$26,000(18K for 401(k), 5,500 for IRA, 2,500 for HSA) and let you decide how to divvy up.

That way a person who does not have a 401(k) at their job, or someone whose 401(k) sucks could just put $26,000 into an IRA.

I know, I know... but then what about all the finance companies that bribe their way into having their expensive investment vehicles being the only options for some medium sized company's 401(k)? Well, someone has to sacrifice.
This is the way it should be.  It makes too much sense for the government to actually allow it, though.  Politicians would probably whine about all the lost tax revenue.

Jrr85

  • Handlebar Stache
  • *****
  • Posts: 1202
I would not support my tax dollars being used for the state to sponsor a retirement account that anyone can get for free from Fidelity or Vanguard.

I would support raising the maximum contribution limit of IRAs to be in line with 401k's. Anyone know why that gap exists in the first place?

It's to encourage employers to incentivize/encourage non-highly compensated employees to save. 

For a highly compensated employee to be eligible to contribute to a 401k, not only does the 401k have to be open to all employees (subject to some allowable requirements for time in job before being eligible), non-highly compensated employees have to contribute a certain percentage, in aggregate.

If you have ever worked at a company that provides a "safe harbor" match, it is because they are ensuring that their high compensated employees are eligible for the full $18.5k contribution.   

So basically the goverment is saying "hey, people in control of the company.  We'll give you this sweet tax deferred option for retirement savings, but only if you make sure your non-highly compensated employees save some minimum amount."  Not a stupid idea, but sucks for people who don't have access to it and probably not worth the inequity over all. 

NorthernBlitz

  • Bristles
  • ***
  • Posts: 409
I moved to the US from Canada in 2013.

I've always thought it was kind of crazy that access to different retirement accounts depended on who your employer was.

In Canada, everyone can access a Registered Retired Savings Plan (RRSP) and can contribute up to 18% of their income.

I like how all Canadians have the same access to retirement plans.

I like how all Americans (with a 401k) can shelter the same amount of money instead of scaling with income (with exceptions for folks approaching retirement).

It seems like expanding access to 401k type accounts to all Americans is reasonable (provided that the government doesn't provide a match). Then, companies don't have the burden of administration and could choose to funnel that money into a match or into profit for shareholders.

Presumably administrative costs scale with size and a federal 401k system would have fewer overhead costs...but it is the government

NorthernBlitz

  • Bristles
  • ***
  • Posts: 409
I would not support my tax dollars being used for the state to sponsor a retirement account that anyone can get for free from Fidelity or Vanguard.

I would support raising the maximum contribution limit of IRAs to be in line with 401k's. Anyone know why that gap exists in the first place?

I think that this makes sense.

Increase the cap on IRAs and make it a total of IRAs + 401ks. Then access is the same for everyone.

bacchi

  • Magnum Stache
  • ******
  • Posts: 4633
It seems like expanding access to 401k type accounts to all Americans is reasonable (provided that the government doesn't provide a match). Then, companies don't have the burden of administration and could choose to funnel that money into a match or into profit for shareholders.

Presumably administrative costs scale with size and a federal 401k system would have fewer overhead costs...but it is the government

The US government 403b plan for federal employees is very low cost.

It's still better to simply increase the maximum contribution, apply it to everyone, and let people choose where they want their money.

teen persuasion

  • Handlebar Stache
  • *****
  • Posts: 1087
I'd want to take the best parts of IRAs ans 401k plans, and roll them together.

Beyond just the difference in contribution limits, 401ks are preferable because of the payroll deduction.  It's a big deal for EITC calculation - 401k contributions can increase your credit total, while IRA contributions can't (because line 7 wages are unchanged).

So I'd want payroll contributions (401k style), but the option to choose any servicer I iike (IRA style), along with the combined higher limits.

terran

  • Magnum Stache
  • ******
  • Posts: 2880
My IRA isnít deductible and I donít have access to a 401k.  The best I can do is a backdoor Roth, which doesnít help as much right now as a 401k would.

I assume your spouse does have a workplace retirement plan? If neither of you do, then there is no income limit on the deductibility of IRAs: https://www.irs.gov/retirement-plans/ira-deduction-limits

inline five

  • Pencil Stache
  • ****
  • Posts: 675
We can direct deposit into our bank account, why not just create direct deposit accounts for IRAs and direct deposit funds from pay check into them? Accounts ending in T would be traditonal and R would be Roth. Or change it to a "T" for taxed and "U" for untaxed so people don't get confused...company contributions would go into untaxed account and would vest immediately per federal law. Let's make it have an unlimited contribution amount and get rid of all those intricate deferred comp rules as well. When passed to heirs the entire untaxed account would be subject to taxation.

Let's not make this complicated.

MrUpwardlyMobile

  • Pencil Stache
  • ****
  • Posts: 515
    • The Upwardly Mobile Life
My IRA isnít deductible and I donít have access to a 401k.  The best I can do is a backdoor Roth, which doesnít help as much right now as a 401k would.

I assume your spouse does have a workplace retirement plan? If neither of you do, then there is no income limit on the deductibility of IRAs: https://www.irs.gov/retirement-plans/ira-deduction-limits

Yeah.  I fall in the annoying niche.  Iíd prefer if we could both max out.

MrUpwardlyMobile

  • Pencil Stache
  • ****
  • Posts: 515
    • The Upwardly Mobile Life
https://www.marketwatch.com/story/the-federal-government-should-fix-the-pension-coverage-gap-2018-06-04

The conversation is really ramping up.  I usually donít support mandatory measures but I think there is room to really make something work here.

inline five

  • Pencil Stache
  • ****
  • Posts: 675
Awesome soon the SP500 avg PE will be 40!!! Sweet!


Paul der Krake

  • Magnum Stache
  • ******
  • Posts: 4881
  • Age: 12
  • Location: UTC-10:00
It probably won't make a dent in the coverage gap. I suspect the people this is meant to help don't max their IRA, adding yet another retirement vehicle will just discourage them even more because it's too complicated.

MrUpwardlyMobile

  • Pencil Stache
  • ****
  • Posts: 515
    • The Upwardly Mobile Life
It probably won't make a dent in the coverage gap. I suspect the people this is meant to help don't max their IRA, adding yet another retirement vehicle will just discourage them even more because it's too complicated.


Part of the discussion is setting it up so that it requires an opt out. All studies show if you start with contributing as a default, most people will just leave it contributing.  Similarly, if you have non contribution as default, people just never bother to change that. Laziness is the rule of thumb.

Radagast

  • Handlebar Stache
  • *****
  • Posts: 1700
  • One Does Not Simply Work Into Mordor
I'd like every existing tax sheltered account to be rolled into a single Universal Savings Account. My thought is to make it have all the combined benefits of Roth IRA and HSA together, but a cap of just $10,000 per year per person (higher than the combined value of HSA and IRA right now). Obviously it would be better for me if it was higher, but the current system is very unequal allowing the well connected and well educated to sheltered hundreds of thousands per household while the lower and middle income people and entrepreneurs rarely have the option available for more than tiny tax shelters. It would be better to give greater tax advantages on a smaller amount with a cooler name (USA!) to get broader participation while not eroding the tax base. Acourse if the limit is $20,000 per year that is fine with me personally, and still far more fair than the current hodgepodge.

exterous

  • Stubble
  • **
  • Posts: 132
Seems like the simple answer here would be for the gov't to just up the maximum tax advantaged account contribution to ~$26,000

That wouldn't be upping the maximum for everyone. Since I have a 403b and 457 this would represent a huge decrease for me. (Although I realize this is probably a very small segment of the population that has access to that much space and actually takes advantage of it).

I'd rather see a government offered 401k style plan that you could use if your company doesn't offer one. It sets some base level expectations of fund offerings along the lines of:
-Must have X number of options under a certain ER
-Contain both active and passive funds
-Can roll corporate 401k funds into and out of easily (for job changes)

There would probably be a huge debate over funds offered given the strong views and financial interests involved but I think there could be a workable solution that would represent an improvement for those that don't have a 401k option or has one with terrible fund options. The biggest issue would probably be companies who stop their 401k plan due to cost

MrUpwardlyMobile

  • Pencil Stache
  • ****
  • Posts: 515
    • The Upwardly Mobile Life
Iíd like to be able to use something thatís deductible. The current system screws me.

GetItRight

  • Pencil Stache
  • ****
  • Posts: 627
Horrible. More government is always a bad thing. If the actual gola of government is to allow people to keep more of their earnings and encourage them to invest it why not just lower taxes (income, property, sales, doesn't matter... Lower all or any) or allow a higher deduction for an IRA. At a state level it could be a credit for property tax, sales tax, gas tax, unemployment tax, disability tax, or any number of other taxes, or just a credit with a net zero lower limit at the state level. There are much more simple ways to do this at a state level that don't involve any significant government overhead (i.e. welfare, or paying people to push paper, dig holes, fill them in, etc.).

maizefolk

  • Magnum Stache
  • ******
  • Posts: 4664
Horrible. More government is always a bad thing. If the actual gola of government is to allow people to keep more of their earnings and encourage them to invest it why not just lower taxes (income, property, sales, doesn't matter... Lower all or any) or allow a higher deduction for an IRA. At a state level it could be a credit for property tax, sales tax, gas tax, unemployment tax, disability tax, or any number of other taxes, or just a credit with a net zero lower limit at the state level. There are much more simple ways to do this at a state level that don't involve any significant government overhead (i.e. welfare, or paying people to push paper, dig holes, fill them in, etc.).

These are actually two very different goals. Yes, if your goal is to cut taxes, you could just cut taxes and it'd be easier and more evenly distributed than trying to increase access to 401ks.

However, the point of 401k and IRA plans is specifically to encourage people to save and then not touch those savings until retirement. That's why the government gives you a tax break, not to lower your taxes, but to incentivize a specific behavior. It's also why if you pull money out of a traditional IRA you don't just pay the taxes you didn't pay before, but a penalty.*

The government is trying to change people's behavior using both carrots and sticks to do something that is in almost everyone's best interest: saving for retirement. And it's doing this because most people suck at saving without outside incentives, and then are prone to spend their savings rather than letting them compound.

*And yes I know we MMMers have found a loophole around paying the penalty, but (hopefully) no one can seriously argue the original intent of the laws creating the current system of Roth and traditional IRAs and 401ks was to enable the Roth IRA conversion pipeline. It was just an unexpected feature/bug of the system that either doesn't cause enough problems to get fixed since most of the people using it to get around the intended goals of the system right now already have saved so much money we don't have to worry about making them save for retirement, or cannot be fixed without creating even bigger problems.

gerardc

  • Pencil Stache
  • ****
  • Posts: 767
  • Age: 36
  • Location: SF bay area
They should do like for HSAs. HSAs allow deductions at the source (which are untaxed and even bypass social security taxes) or contributions with post-tax money and deduction at tax return time. You can use any HSA custodian and the investment funds their offer (although that choice seems limited sometimes too). Why do we need each and every company to "setup their 401(k) plan"? WTF does that even accomplish? It just gives the custodian company power to remove features and have your company pay to buy them back. US governement is so retarded, I can't believe this has been going on for many years with seemingly no one noticing.

sherr

  • Handlebar Stache
  • *****
  • Posts: 1016
  • Age: 35
  • Location: North Carolina, USA
They should do like for HSAs. HSAs allow deductions at the source (which are untaxed and even bypass social security taxes) or contributions with post-tax money and deduction at tax return time. You can use any HSA custodian and the investment funds their offer (although that choice seems limited sometimes too). Why do we need each and every company to "setup their 401(k) plan"? WTF does that even accomplish? It just gives the custodian company power to remove features and have your company pay to buy them back. US governement is so retarded, I can't believe this has been going on for many years with seemingly no one noticing.

Well if you want an actual answer, the intent is that people who have some idea what they're doing should place some safeguards on your retirement money. Also known as the company's "fiduciary duty." As someone who knows what they're doing and is perfectly capable of being responsible with their money, yes it annoys me too. But on the other hand we both know that there are people who would gamble away every bit of their retirement savings on penny stocks if they were given the option.

401ks are designed to be a half-measure between "company controls everything and gives you guarantees but you also have to work for the company for 20 years and are at the complete mercy of the company's continued profitability / existence" pensions and "do what you want with your own money, save, or don't, or gamble, or whatever" personal responsibility.
« Last Edit: June 07, 2018, 11:48:28 AM by sherr »

gerardc

  • Pencil Stache
  • ****
  • Posts: 767
  • Age: 36
  • Location: SF bay area
They should do like for HSAs. HSAs allow deductions at the source (which are untaxed and even bypass social security taxes) or contributions with post-tax money and deduction at tax return time. You can use any HSA custodian and the investment funds their offer (although that choice seems limited sometimes too). Why do we need each and every company to "setup their 401(k) plan"? WTF does that even accomplish? It just gives the custodian company power to remove features and have your company pay to buy them back. US governement is so retarded, I can't believe this has been going on for many years with seemingly no one noticing.

Well if you want an actual answer, the intent is that people who have some idea what they're doing should place some safeguards on your retirement money. Also known as the company's "fiduciary duty." As someone who knows what they're doing and is perfectly capable of being responsible with their money, yes it annoys me too. But on the other hand we both know that there are people who would gamble away every bit of their retirement savings on penny stocks if they were given the option.

401ks are designed to be a half-measure between "company controls everything and gives you guarantees but you also have to work for the company for 20 years and are at the complete mercy of the company's continued profitability / existence" pensions and "do what you want with your own money, save, or don't, or gamble, or whatever" personal responsibility.

Yeah but I don't see the difference with IRAs or HSAs. If we want to restrict the class of assets people can buy within registered accounts, that might be fine, but still we could give that accountability to any IRA company that the taxpayer is free to choose themselves. There's no need for your company to set up a 401(k) plan, that accomplishes nothing.

GetItRight

  • Pencil Stache
  • ****
  • Posts: 627
Horrible. More government is always a bad thing. If the actual gola of government is to allow people to keep more of their earnings and encourage them to invest it why not just lower taxes (income, property, sales, doesn't matter... Lower all or any) or allow a higher deduction for an IRA. At a state level it could be a credit for property tax, sales tax, gas tax, unemployment tax, disability tax, or any number of other taxes, or just a credit with a net zero lower limit at the state level. There are much more simple ways to do this at a state level that don't involve any significant government overhead (i.e. welfare, or paying people to push paper, dig holes, fill them in, etc.).

These are actually two very different goals. Yes, if your goal is to cut taxes, you could just cut taxes and it'd be easier and more evenly distributed than trying to increase access to 401ks.

However, the point of 401k and IRA plans is specifically to encourage people to save and then not touch those savings until retirement. That's why the government gives you a tax break, not to lower your taxes, but to incentivize a specific behavior. It's also why if you pull money out of a traditional IRA you don't just pay the taxes you didn't pay before, but a penalty.*

The government is trying to change people's behavior using both carrots and sticks to do something that is in almost everyone's best interest: saving for retirement.

The government is not attempting to encourage saving for retirement, they are encouraging saving (investing, really) and not withdrawing until a certain arbitrary age. I get what you're saying, but lower taxes of any sort encourage savings and investment. Make it simple and steal less from people, with as little paperwork, bureaucracy, and welfare jobs (government paper pushers) as necessary and people will tend to save more. Many will also spend more, but that's their choice as well.

A personal anecdote... I only contribute minimum for the match to tax advantaged retirement accounts. I do this because I owe significant student loan debt, resultant from my poor choices but also a choice that would have been unavailable and a situation impossible to find myself in without government intervention. Government ruins lives, taxation is theft. The less of each we have the better off society as a whole is.

Paul der Krake

  • Magnum Stache
  • ******
  • Posts: 4881
  • Age: 12
  • Location: UTC-10:00
Government ruins lives, taxation is theft. The less of each we have the better off society as a whole is.
Are you done?

ixtap

  • Handlebar Stache
  • *****
  • Posts: 2166
Horrible. More government is always a bad thing. If the actual gola of government is to allow people to keep more of their earnings and encourage them to invest it why not just lower taxes (income, property, sales, doesn't matter... Lower all or any) or allow a higher deduction for an IRA. At a state level it could be a credit for property tax, sales tax, gas tax, unemployment tax, disability tax, or any number of other taxes, or just a credit with a net zero lower limit at the state level. There are much more simple ways to do this at a state level that don't involve any significant government overhead (i.e. welfare, or paying people to push paper, dig holes, fill them in, etc.).

These are actually two very different goals. Yes, if your goal is to cut taxes, you could just cut taxes and it'd be easier and more evenly distributed than trying to increase access to 401ks.

However, the point of 401k and IRA plans is specifically to encourage people to save and then not touch those savings until retirement. That's why the government gives you a tax break, not to lower your taxes, but to incentivize a specific behavior. It's also why if you pull money out of a traditional IRA you don't just pay the taxes you didn't pay before, but a penalty.*

The government is trying to change people's behavior using both carrots and sticks to do something that is in almost everyone's best interest: saving for retirement.

The government is not attempting to encourage saving for retirement, they are encouraging saving (investing, really) and not withdrawing until a certain arbitrary age. I get what you're saying, but lower taxes of any sort encourage savings and investment. Make it simple and steal less from people, with as little paperwork, bureaucracy, and welfare jobs (government paper pushers) as necessary and people will tend to save more. Many will also spend more, but that's their choice as well.

A personal anecdote... I only contribute minimum for the match to tax advantaged retirement accounts. I do this because I owe significant student loan debt, resultant from my poor choices but also a choice that would have been unavailable and a situation impossible to find myself in without government intervention. Government ruins lives, taxation is theft. The less of each we have the better off society as a whole is.

It is amazing how rare it is that someone who says this chooses to move to Somalia.

maizefolk

  • Magnum Stache
  • ******
  • Posts: 4664
The government is not attempting to encourage saving for retirement, they are encouraging saving (investing, really) and not withdrawing until a certain arbitrary age. I get what you're saying, but lower taxes of any sort encourage savings and investment.

I'm afraid we fundamentally disagree about the goal of legislature passed to create tax advantaged retirement accounts, which is to encourage saving specifically for retirement, and hence reduce demand on the social safety net by seniors who didn't save and hence have no income other than social security.

The government certainly does always want to encourage long term investment generally, but this is addressed through preferential tax treatment of qualified dividends and long term capital gains.

However, since at this point we're arguing about the intent inside of other people's heads rather than the facts on the ground, short of retired members of congress showing up on this thread to expound on their thinking at the time of passing major tax bills we may have to simply agree to disagree.

shuffler

  • Bristles
  • ***
  • Posts: 348
Government ruins lives, taxation is theft. The less of each we have the better off society as a whole is.
Are you done?
I wonder ... considering that the power of the government is backed by the military, and that if you refuse to pay taxes you'll ultimately be deprived of your liberty through imprisonment and similar punishments ... could one say that taxation is theft at gunpoint?

GetItRight

  • Pencil Stache
  • ****
  • Posts: 627
The government is not attempting to encourage saving for retirement, they are encouraging saving (investing, really) and not withdrawing until a certain arbitrary age. I get what you're saying, but lower taxes of any sort encourage savings and investment.

I'm afraid we fundamentally disagree about the goal of legislature passed to create tax advantaged retirement accounts, which is to encourage saving specifically for retirement, and hence reduce demand on the social safety net by seniors who didn't save and hence have no income other than social security.

It's not for retirement, if you cannot take your money upon retirement either at all or without significant additional taxes. We are on an early retirement focused forum...

You bring up a great point with social security. While it would be great to eliminate that Ponzi scheme entirely, a good start would be requiring anyone who wishes to participate to opt into the social security tax, or at least allowing anyone who so desires to opt out of the social security tax and not be eligible to collect anything from it. I would gladly opt out and not demand reimbursement for anything stolen from me for that program. I account for it as a tax, like all other taxes. It's part of the cost of paying off government to leave me alone. In any event it seems to be universally advocated here to minimize taxes paid by using tax advantaged retirement accounts, so I suspect most here would prefer to not pay the social security tax and instead use that money to decrease time to FIRE.

maizefolk

  • Magnum Stache
  • ******
  • Posts: 4664
The government is not attempting to encourage saving for retirement, they are encouraging saving (investing, really) and not withdrawing until a certain arbitrary age. I get what you're saying, but lower taxes of any sort encourage savings and investment.

I'm afraid we fundamentally disagree about the goal of legislature passed to create tax advantaged retirement accounts, which is to encourage saving specifically for retirement old age when they are no longer able to work to support themselves, and hence reduce demand on the social safety net by seniors who didn't save and hence have no income other than social security.

It's not for retirement, if you cannot take your money upon retirement either at all or without significant additional taxes. We are on an early retirement focused forum...

Fair enough, I was using imprecise language. Does the correction in my quote above address your concern?


Quote
You bring up a great point with social security. While it would be great to eliminate that Ponzi scheme entirely, a good start would be requiring anyone who wishes to participate to opt into the social security tax, or at least allowing anyone who so desires to opt out of the social security tax and not be eligible to collect anything from it.

This proposal only works if we as a society are willing to let the people who opted out of social security but didn't use the tax savings to save for their old age to become homeless and ultimately starve in the streets.

If we as a society not willing to let people go homeless or starve if they fail to take personal responsibility (or have an extremely bad run of luck in line), we are going to have to pay for a social safety net anyway through some kind of tax, whether payroll (social security tax), regular income tax, property taxes.

A payroll tax seems more fair than the alternatives, since it means many more people have skin in the game. I make enough money that I'm pretty sure if we eliminated social security, and provided an equivalent social safety net through an increase in the progressive income tax, my tax burden would go up substantially rather than down.

Quote
In any event it seems to be universally advocated here to minimize taxes paid by using tax advantaged retirement accounts, so I suspect most here would prefer to not pay the social security tax and instead use that money to decrease time to FIRE.

Absolutely, all things being equal I would prefer to have an extra 12.4% a year to invest for my own retirement. However, as described above, all things are not equal. *shrug*