Biden's 401K Proposal

[RiverDog]

I've been mostly unimpressed with Biden's campaign platform, dedicating my support to him almost solely because he's not Donald Trump. However, I read something about a proposal of his that I really like, and that is a change in the 401K rules that would eliminate the clause allowing for 401K contributions to reduce earned income and convert it into a tax credit. The effect of a tax credit would be that it would be more of a benefit to lower income earners as the tax savings in the lower brackets isn't as great as it is in the higher ones:

...they (income reduction incentive) give the biggest reward to high earners. If a single earner in the top income-tax bracket contributes $1,000, he saves $370 in taxes. For a single earner in the 12% tax bracket, that $1,000 deduction is worth only $120.

The Biden proposal restructures the incentive by replacing the deduction with a tax credit, which is estimated to be 26%. Thus, low-wage workers would be rewarded more than under current law and those in the top brackets somewhat less. And the credit would be refundable so that even workers with no tax liability would benefit from putting $1,000 into a 401(k) plan.

The Biden website says almost all workers without a retirement plan will have access to an automatic 401(k).

https://www.marketwatch.com/story/biden ... =home-page

This is a fantastic idea. I am a huge supporter of 401K's and have advocated increasing their use for years. I used them to build my retirement nest egg and did so on relatively modest earnings. With Social Security becoming more and more unreliable, it's essential that younger workers save for their retirement. It also helps the little guy.

Additionally, employers need to get away from pensions and start converting them to 401K's, which offer advantages over pensions for both the worker and the employer. The individual has more control over their 401K fund whereas there is zero control on pension investments, plus they are portable and can travel with the employee if they change jobs. Pension accounts stay with the employer.

For the employer, they do not owe 401K money to ex employees as they do with pensions. Many older, established companies are now burdened with legacy costs that their newer competitors aren't saddled with.

[Aseahawkfan]

Any improvement to 401k for the little guy is good. But I still wonder how many use them.

If the Social Security program ever collapses as some predict, America is screwed. No way people can survive in America without social security. I know few people that managed their retirement well enough to retire without social security. That would be the ultimate collapse of society with homeless old folk or working until you die.

[RiverDog]

Any improvement to 401k for the little guy is good. But I still wonder how many use them.

If the Social Security program ever collapses as some predict, America is screwed. No way people can survive in America without social security. I know few people that managed their retirement well enough to retire without social security. That would be the ultimate collapse of society with homeless old folk or working until you die.

Well, you know one here. I've been retired for 2.5 years, will turn 66 next month, and I have yet to draw a penny out of my SS and don't plan to until I turn 70. If there's anything I've done right with my life, it's plan for my retirement.

It's absurd how many people don't know or care about planning for their retirement. I was fortunate as it was drilled into me by my parents at an early age. And it's not just the little guy with no education. I've mentored college graduates in management positions that weren't even contributing enough to their 401K to take advantage of the company match. My biggest pet peeve at work was that my employer did next to nothing with regard to helping their employees understand their retirement benefits.

I can see a lot of changes coming in Social Security, starting with the elimination of the early retirement option, which is killing the system. Next would be to move full retirement out to 68 or 69 for younger workers. It's either that or dramatically increase payroll taxes.

But that's not really my point. My point is about Biden's 401K plan. I was pleasantly surprised at what I read. There needs to be a major re-thinking of our retirement systems and this plan is a good start.