401(k) Will Be Gone Within a Decade | Hacker News Reader

401(k) Will Be Gone Within a Decade

bloomberg.com

21 pointsandsoitis29 comments

So I don't know all the motivations behind the 401(k) legislation (I seem to recall that the original plans were using a type of loophole, until the plans were coded into law, but I could be wrong on that). However one thing that it does do is it gets the average middle-class American very interested in the health of the stock market. Typically non-investors would be concerned with jobs, inflation, and interest rates. But by tying everyone's retirement funds to the health of the stock market, that can get people to support governance that makes their retirement fund numbers go up, even if it cuts into jobs or one of the other metrics (ideally people would look at everything in balance, but they tend to look at their 401(k) balance as it exists right now instead of what it will likely be in 10-20 years under alternate policies).

Now since the bulk of stocks are held by the wealthier class, who benefits more with a healthy stock market, the existence of 401(k) is a vehicle to get the broader classes of voters to vote against their best interests if it means making those numbers go up.

Any thoughts on the above? I haven't read any articles or commentary that states it like this but to me it kind of makes a lot of sense.

I think that the intent was to defer taxes until retirement, when one is in a lower tax bracket.

Distributions are required (else a penalty) when one is 70.5 or older, According to an extremely complex formula that only investment companies seem to understand, and it's all taxable.

Only ROTH IRAs are tax free, but they are funded with money that has already been taxed, and have limitations.

one note on required distributions, I think they recently were relaxed with the SECURE 2.0 Act.

Based on a couple searches, the RMD age went up to 73, and in 2033 will increase again to 75 (given the start date this will affect those born after 1958).

If more people in my life were familiar with 401(k) and general personal finance, I'd might agree. However, around me I don't see enough people contributing to their 401k, or if they do they don't really understand it besides maybe knowing they get an employer match.

I just don't think enough people understand it well enough to even vote against their best interest intentionally. At best, it would be the same vote even if they didn't have a 401k.

I don't think the upper-middle class self-identifying as equity holders was an explicit goal, but I agree that it has been probably the most impactful outcome. Much more so than the direct tax impact.

Money I earn is taxed.

I invest what remains, gains are taxed.

I buy a house with what remains after that, I owe property tax.

I buy things to live with what remains, I pay sales tax.

To keep up the pretense of caring the state occasionally throws a bone like "tax advantaged" accounts. It either defers taxes or takes after tax money. Oxymoron to start with.

The state is a parasite that only knows how to sink it's fangs deeper into you.

Afuera!

And without the state you would likely be a subsistence farmer regularly ravaged by bandits.

Spoken like a child who has yet to learn about the benefits of having a state… aka a Libertarian.

The first rumblings that the benefits of the tax breaks may be overstated came in a 2014 study of Danish savers. Without tax-advantaged accounts, it found, people just put their money in another kind of account.

This is one of many bad takes, faulty logic, and other problems with this author’s arguments.

Danish people are not a stand-in for Americans. Early withdrawal penalties are not the main issue holding back 401k plans. “Tinkering with the capital gains tax rate” is not a realistic solution to getting more workers to save for retirement.

Honestly curious about which lobbyist or PR firms got into this writer’s head. Someone rooting for alternatives to much-delayed tax strategies targeting the rich and corporations, by the look of it.

I agree that 401k rules are not ideal. It seems reasonable that once you have X dollars in it the tax advantage should stop. Why should the government encourage me to save more money when at age 30 I already have hundreds of thousands of dollars in a tax-advantaged retirement account?

However, the article doesn't spell out the political case for how this would happen. The 401k is a vehicle that provides the greatest benefit to the middle and upper middle class, the largest class of voters, so I can't imagine it would ever be cut. Rules like the SALT deduction still have strong support even though they are way more niche/economically regressive than cutting 401ks.

> More liquid accounts, similar to a Roth IRA, have been become popular in Canada, and Canadians are saving more in them than in the tax-advantaged retirement accounts.

No, that's not what is happening.

Canada has two vehicles. RRSPs and TFSAs (let's leave RPPs out of this). They're saying that Canadians are moving from RRSPs to TFSAs because of the flexibility.

No, they're moving because both are tax advantaged in different ways. RRSPs lower your tax burden now, but you pay taxes when you withdraw even when you're retired. TFSAs don't lower your tax burden now, but you don't pay taxes on them when you're retired, no matter how much they grow!

Lower income people should consider TFSAs. Higher income people should consider RRSPs. First order approximation.

Getting rid of the 401(k) with no safety net to replace it is a disaster and not what's happening in Canada at all.

http://archive.today/jdfPv

There's a worldwide issue with managing retirement. Australia has other taxation issues in how people are encouraged to both fund their future, and find ways to manage a post-work income from both their own and state funding. It leaks out into voting, and turns things like tax changes into massive age correlated voting risks and so instead of root-and-branch tax reform, you get tweaks.

People need to remember that retirement income is predicated on a model of future earnings, either because the next cohort(s) work and generate the money to meet your needs (typically through the state) or the same thing, but indirectly via share market and other investments into the future. Even cash held at bank is predicated on the guarantees over its value, and interest which ultimately come down to future generations making the wealth.

Inter-generational wealth transfer is complicated. This is about one specific distortion. If you're in Japan, with a massive shortage of future workers, there's a different kind of problem. If you're in any economy with out of control inflation, it's a third one. Nowhere has it perfect. A lot of post USSR babushkas live in penury because they wound up in Estonia or some other FSU economy, with an income stream paid in Moscow, into a Euro economy that doesn't want to be charitable.

I'm paying toward a non means tested UK stte pension, which because I live in Australia will "freeze" at the value I enact, and get no CPI indexing. If I move to Germany, it will track CPI because of bilateral agreements between countries. There were stories in times past of German Whermacht veterans living in the UK getting a better state pension than British Soldiers retiring in Germany, because of how the bilateral deals work. (my Australian Pension is means tested and since i have huge 401k equivalent (we call it superannuation) I won't qualify for)

It pays to remember that Bismark's original model was carefully designed by actuaries to kick in when most workers had died, or would die shortly. Now, retirement income has to last 30 or more years.

There is not a growing “intellectual movement” there are a handful of economists.

They also apparently don’t understand that Expenditures and tax receipts are not the same.

When the government doesn’t take your money it doesn’t “cost them” that amount.

(Not to mention the cost of providing retirement vs individuals saving for themselves)

Wasn't the increased savings rate a big part of the reason for restricted+advantaged retirement accounts? And this opinion column seems to be treating that as almost irrelevant.

That is because it has hardly helped the middle class who have almost nothing in 401K accounts. Instead it is served as a tax break for the wealthy, not the original intention. Of course it should come as no surprise that wealthy people are fairly good at gaming the economic system.

Sounds like linkbait, just some random opinion and a weak argument

Hard to say. The clamoring for taxing unrealized gains seemed just as fringe to me, and now we've already got Janet Yellen trying to make it real.

Because the internal logic to pretty much anything falls apart at an egregious enough scale. 401(k)s are wonderful for nearly all Americans (although a weak replacement for pensions, and too many Americans start them too late for the miracle of compound interest to really kick in). But at the extreme end of the scale, the top half of one percenters pay little to no taxes as they take loans against the unrealized profits of their portfolios, wrapped up in complicated agreements and hedges. What works for 99.5% of Americans is broken at scale for the top .5%.

For better or worse, that's how a movement starts.

I'm a boomer parent. :-)

And this article is trash.

  And as the federal government gets increasingly desperate for new sources of revenue, the tax treatment of 401(k)s is a likely target.

That is true if the government continues to heap trillions on the wealthy, and soak it out of the peeps toiling away, and even retirees. I pay taxes on my 401(k) distributions and Social Security income. They are in essence deferred taxes.

Of course, some people assume that will always and increasingly be the case, but extreme wealth inequality is destabilizing.

Clickbait Title of the Month: "Your 401(k) Will Be Gone Within a Decade"

"If you earn $60,000 a year after tax and you don’t have kids, you’re in the richest 1 percent of the world’s population.

If you have a household income of $130,000 after tax and you’ve got a partner and one kid, you’re also in the richest 1 percent."

If it's a time to tax annual gains for the US 1%, it's time to tax annual gains for the world's 1%. The wealth in 401(k)s is obscene.

https://www.vox.com/future-perfect/2023/9/15/23874111/charit...

Article seems to make the argument that is should happen (poorly), but doesn't provide any evidence that it will happen.

I would rather they make a plan to phase out social security.

This. Although at this point I want to watch it crash and burn entirely as opposed to the slow and annoying death it has been taking.

Every single policy on offer today, irrespective of party, is about demolishing liberty.

The one side of Leviathan offers a slower rate of demolition.

That's pretty much it.

Every day hacker news becomes more like my boomer parents facebook feed

Or maybe each day you are just becoming your boomer parents. My case is bolstered by the fact you used the word “boomer” in written and/or spoken communication unironically.

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