"Universal 401k" proposal

[dude]

http://www.nytimes.com/2014/07/23/opinion/a-401-k-for-all.html?action=click&pgtype=Homepage&version=Moth&module=inside-nyt-region&region=inside-nyt-region&WT.nav=inside-nyt-region&_r=1

An idea that sounds good in theory, but I think the majority of commenters probably have it right -- people on the lower end of the income spectrum already have a tax credit for savings, don't pay any federal income tax anyway, and have more pressing immediate concerns (like putting food on the table) than a 401k.

I would like to see a portable pension plan though, like Sen. Tom Harkin has proposed.

[prof61820]

I can  think of a couple of reasons why this is a good idea: (a) it will help with financial literacy and get younger workers thinking about the value and power of compound interest and (b) it will require employers to pay a living wage that includes enough for low income individuals to start saving for retirement.

Can you post something on Harkin's portable pension plan?

[msilenus]

Our retirement savings policies are very regressive, but only to a point.  They vastly benefit the portion of the top 10% that can be plausibly called middle class, but don't usually matter much for the very top echelons of society.  (Mitt Romney being one exception.  He used his position in private equity to game the hell out of his Roth.  It's rumored that he has a 9-figure IRA balance.)

Everything the article is pointing out is basically true, and better policy than what we have IMO.  However, the above point means they probably aren't the most pressing domestic policy problems, even if you're focused on inequality.  So I don't see where they fit into a rational agenda in a gridlocked country.  You can agree that this is a good thing to do, but maintain that it's not a very good use of political capital.

So please stop trying to gore my ox.

[Gin1984]

I have friends working multiple part time job, who end up earning $50K or so a year but none of their jobs have 401k options.  So even if they max out the IRA, they are paying much more in taxes than someone else.  Also, if I put money in 401k, enough to move my tax bracket down to 10% bracket, I am eligible for EITC.  If I do the same in an IRA, I am not.  I see that as a problem.

[hermoninny]

I definitely agree that retirement savings tax benefits help those who are wealthier because they have more money to save.  I just don't believe that a government-sponsored savings plan is the way to go, in any form.  Wasn't that what Social Security was supposed to be, in essence?  Citizens pay in through payroll deductions, government puts money in separate fund and doesn't touch it except to pay citizens back in retirement? 

[msilenus]

I definitely agree that retirement savings tax benefits help those who are wealthier because they have more money to save.  I just don't believe that a government-sponsored savings plan is the way to go, in any form.  Wasn't that what Social Security was supposed to be, in essence?  Citizens pay in through payroll deductions, government puts money in separate fund and doesn't touch it except to pay citizens back in retirement?

I don't think that was ever the plan, no.  Keeping capital idle would be worse that just relying on transfer payments and sovereign wealth funds are a relatively new idea.

[teen persuasion]

I have friends working multiple part time job, who end up earning $50K or so a year but none of their jobs have 401k options.  So even if they max out the IRA, they are paying much more in taxes than someone else.  Also, if I put money in 401k, enough to move my tax bracket down to 10% bracket, I am eligible for EITC.  If I do the same in an IRA, I am not.  I see that as a problem.

Yes, my DH could save in his 401k to make us eligible for a larger EITC, but I have no access to a 401k.  We can both contribute to IRAs, and do, but those have no effect on the current EITC formula for us.  So I cannot save as much in tax advantaged accounts as DH can, and the plans have different effects on our taxes.  I'd like to have a hybrid plan: independent of employers (like an IRA), but reduces wages like a 401k does, with options for Roth or pre-tax versions, and with limits equal to combined IRA and 401k limits (or higher, of course).  Matching would be nice, if possible, but we are currently maxing w/o a match.  It would be more fair if any matching were in $ amounts, not %, since lower incomes lose out that way, too.  As long as I'm making a fantasy wish list, I'd like the retirement savers credit to be refundable, since we currently get no benefit from that, either, as we owe no tax due to low income and high relative saving rate.

One more thing - since there are spousal IRAs, there should be a spousal account in universal 401ks, too, as long as household income covers the combined contributions.

[hermoninny]

I know that my husband, since he is self-employed, can open a "Solo 401(k)" account.  Is there no individual retirement account (aside from IRA's) available for people who work for companies who just don't offer 401(k)'s?  He has worked for companies who offer them, just with no match, but I don't have any experience with companies who offer no plan what-so-ever. 

[teen persuasion]

I know that my husband, since he is self-employed, can open a "Solo 401(k)" account.  Is there no individual retirement account (aside from IRA's) available for people who work for companies who just don't offer 401(k)'s?  He has worked for companies who offer them, just with no match, but I don't have any experience with companies who offer no plan what-so-ever.

IRA or taxable accounts are it if your employer doesn't offer a 401k, like mine.  I work part time for a small library, our entire budget is barely over $100k, so we run a lean operation.  The cost of running a  401k or 403b is just not worth it for one or possibly two people.

[CanuckExpat]

A solution to some of these problems would be to move closer to the model of the rough Canadian Equivilent where the account is tax deferred, but can be set-up by an individual with any financial institution they want (no employer involvement needed): http://www.moneysmartsblog.com/canadian-rrsp-vs-us-401k-comparison/
http://money.stackexchange.com/questions/4791/what-is-the-difference-between-401k-accounts-in-the-u-s-and-rrsps-in-canada

As I understand, the business of providing high-fee 401k plans to employers is very lucrative, so I imagine there would be well funded push-back to changes that might eat into those profits..

[Beric01]

I don't want the government going anywhere near actually managing our retirement funds. It will quickly get unsustainable. Just look at Social Security (which is just taxes for me - I will never receive a dime).

Tax-advantaged accounts which encourage people to save on their own are fine. But ensuring Americans have a comfortable retirement is not a responsibility or function of government, and never should be.

[msilenus]

I don't want the government going anywhere near actually managing our retirement funds. It will quickly get unsustainable. Just look at Social Security (which is just taxes for me - I will never receive a dime).

Do you have a terminal illness, or will you just refuse the money?  IIRC, SS is funded at about 75% even after the trust fund depletes, and benefits are much higher than 13 1/3 cents.

[SpareChange]

I think it would be awesome if they just gave us the option to drop our social security taxes into our IRA or even 401k. That would goose mustachian early retirement substantially.

[Vilgan]

I wonder how much of this issue would just be fixed by allowing those without a 401k to contribute more to an IRA. Yes, better matching is a great idea and all but that seems like just paying people money without a great source of funding. The key issue seems to be availability so lets tackle that.

As for those in a lower tax bracket - they should be using the Roth option anyway so it doesn't seem that regressive.