Hacker News Reader

Comment by jlmorton | Hacker News Reader

It exists as a historic accident. It was not originally intended as a retirement savings program, but simply a way to help a small number of rich people avoid tax on deferred income invested in the stock market.

Though the program has become widely popular, it's still very clearly a giveaway to the rich. Not only are the wealthy capable of saving a larger amount, we also allow their employers to contribute up to $56,000. Obviously, most employers are not going to contribute $56,000 to their employees retirement savings plan.

Up to 80% of the tax expenditure of 401k plans is captured by the top quintile of income earners. The plans amount to welfare for the wealthy, and indeed the government loses more revenue from these tax expenditures than it spends on many welfare programs like food stamps.

View on HN

This is a very strange interpretation. Lost revenue relative to what? Not having it? Is the government losing revenue by not taxing the bottom 50% of income earners, too?

The tax code is structured this way to incentivize saving for retirement. Social security exists for the same reason. The government allows you to defer taxation in these structured vehicles so that you are better able to care for yourself in your old age, so that the government doesn't end up footing the bill.

These accounts are no more a "give away" to the rich than the progressive income tax schedule is a "give away" to the poor.

>These accounts are no more a "give away" to the rich than the progressive income tax schedule is a "give away" to the poor.

Since only the rich are employed by employers who offer the benefits of these accounts, it is effectively a give away to the rich. If it wasn't a give away restricted to a certain populace, then it would be de-linked from employment and available for everyone.

> Since only the rich are employed by employers who offer the benefits of these accounts

So, being an employee of a company that offers a 401k is the new definition of "rich"?

I was referring to the concept of employers being able to contribution $56k to an employee's 401k (which only happens if employee is already highly compensated), as opposed to IRAs being capped at $6k.

Lots of employers offer these. Only if your definition of "the rich" is extremely broad is it restricted to "the rich", first of all. Certainly many people making 60-80k have access to these accounts, and quite often some level of employer matching. I guess you could call that "rich" relative to some people, but it's not what I think of when I hear "the rich".

Secondly, nobody (well, maybe some people, but mostly nobody) describes the progressive tax schedule as a "give away" to the poor, despite it representing a much larger wealth transfer than these retirement accounts.

jlmorton was referring to the employer contribution limits of $56k, which are utilized, obviously, by rich companies.

>Since only the rich are employed by employers who offer the benefits of these accounts

Everyone and their brother has a 401k today. Even many entry level blue collar jobs have 401k plans.

Depending on future tax changes, of course, 401k participation of the wealthy may actually result in higher revenue for the government.

Yes, the current income tax is deferred, and there's the possibility that when it's realized, it will be in a lower tax bracket. For the wealthy, it may not end up being in a lower bracket. However, all of the gains, when distributed, will be taxed as ordinary income; if the money had been invested in an ordinary account, there would have been capital gains, which are taxed at a lower rate.

Reply on news.ycombinator.com