What do you think the best strategy will be for high income earners? Move to a Roth 401k?
Do you think this will defeat the traditional 401k model?
High income earners pay more in taxes now on a Roth, in most cases less in retirement. Unless you think Biden will raise taxes, but he can’t do that without Congress, so it seems unlikely.
If you’re a very high income earner, no Roth anyway.
I do not believe Roth 401k have the income restrictions. I’ve used them at work before and never had an issue.
Currently I do the traditional IRA because I want to avoid taxes.
Under Biden’s plan it seems like a switch to the Roth may make more sense.
This is what I wrote in another thread here:
"It further complicates what should be a simple process, and the tax process is already too complicated.
It is not a way to improve the system, it is simply a way to increase income taxes on anyone whose top tax bracket is or will be higher than 26% and lower taxes for those below that level. In other words, it uses the income tax system to redistribute those funds to those in the lower tax brackets. It will also increase state income taxes for those contributing to 401ks because one’s taxable income will be higher.
It is not clear if future growth in 401ks will be taxable or not, or what the status of traditional and Roth IRAs would be under this system.
Currently, taxable income over about $160K single and $320K married have tax rates above 26%. More will be in that category under Biden’s proposal, including folks under the magical $400K that he has touted as being the low limit for those to whom he will raise taxes."
I think we’ll need to see far more details than we have as there are just too many questions. The relationship between pre and post tax savings is going to have to fleshed out in the details as the info so far has been sketchy. I think each individual is going to have to look at their own situation. For example, there has been a lot written about converting 401k to Roth IRA. As a believer in the time value of money, I ran a lot of numbers and decided that was not a good idea for someone at or near retirement age because there was not enough time to recoup the current tax hit and the resulting loss of growth. Whether or not that changes is yet to be seen
As an aside, when my wife and I worked we only had 401ks. So, we maxed them out, both pre and post tax tax. We had traditional IRAs for the 3 years they were available to everyone in the 1980s, before Congress was sufficiently stunned by the amount of money that people saved that went untaxed that they put numerous qualifications on eligibility. We would have loved to have Roths available to balance our savings between pre and post tax. My philosophy has always been to push taxes into the future as far as possible and, while it has taken a lot of years, that has finally caught up to us. RMDs have forced us into higher tax brackets than when we were employed.
I agree. It just sounds like a half baked idea that goes against the design of the system.
If he’s trying to encourage the poor to save, he needs to make it better for companies to match and allow more matching at lower wages.
Example if you earn 30k. Maybe let them company get a tax credit for every dollar they match. Example an employee puts in a flat and the company matches 3. If you earn 50k. Maybe it’s 1:2.
What do you think could improve the 401k system? I think companies should be required to Match something.
My current employer match 1500 a year. That’s it. I put in 5% if my salary which maxes out my contribution for the year.
I then max out an Ira.
I personally fax our tax system a tad overwhelming and think it needs to revamped.
Biden’s tax plan is going nowhere so I don’t know why it would concern you.
Here are the Roth income restrictions.
That’s Ira. We are talking 401k. Similar but different.
There was a bipartisan bill introduced in the House shortly before the election. The bill would have made many changes to 401k and IRA processes, especially for employees. That would have been a good step forward, but in this environment I don’t expect anything will happen. We’ll see if anything happens with the new Congress.
I think all the existing plan laws and regulations need to be simplified and more uniform. Each type of plan has different rules for deposits and withdrawals, eligibility, etc. Investments choices need to be broader and administrative costs more controlled. There is no need for all of those differences, many of which were likely included to meet the specific need of an elected officlal or one of his major contributors. Many employers simply turn over their plans to insurance companies, most of which have higher fees and focus on annuities and not investment. Those options should be available, but not a limitation. My approach has always been on the accumulation of wealth and not buying a future income stream. If one appropriately manages their wealth, they will have a sufficient income stream.
Since the 401K is supposed to replace pensions. I know that wasn’t the plan but that is how they turned out, I would like to see matching required and companies must offer them.
I would also like to see caps on IRA increased. I think they’re too small to really make a retirement possible.
A common theme in our government is they create something then half ass it.
Matching required, but a good first step would be to have participation be the default.
I wouldn’t want to force people to participate but I would mind forcing companies. Say 10% of wages go into 401k.
Otherwise the system will always be broken
Not force, but make it the default. They would fill out paperwork to opt out instead of having to opt in.
The problem with that is some corporate 401k are garbage. The fees are high and the options limited. Maybe making them pick either an Ira or 401k. If they don’t pick, Ira.
Or don’t offer garbage plans.
Most companies want to do what is cheap. That’s why they have high fees and few options
I wouldn’t be hurt if we just got rid of 401k and just did Ira with a company match.
I always roll my 401k into Ira when I I leave a company.
I suspect a lot of small companies just don’t know any better.
Know better than what? To save money?
I think some don’t know how to choose a good provider, so they get suckered by high cost ones.