4 ms·

You can contribute more if you have access to a 401k. The current limit there is $18,500. The argument against unlimited tax free contributions is that above a

by harryh 9y ago

You can contribute more if you have access to a 401k. The current limit there is $18,500. The argument against unlimited tax free contributions is that above a certain point it becomes a tax break only for the rich.

nly 9y ago
> The argument against unlimited tax free contributions is that above a certain point it becomes a tax break only for the rich. That's where the lifetime cap comes in I guess. £1M isn't that crazy over a ~40 year timeframe for someone on a high income who isn't necessarily 'rich' and, at current annuity rates, won't buy you absolute luxury in retirement.
mancerayder 9y ago
Right, and oftentimes (but not always, anymore) companies contribute to your 401k as well. Also, as a self-employed person you can contribute up to $55,000 in the year depending on your income, in what's called a SEP IRA.
- nly 9y ago
  The SEP IRA sounds like the equivalent to a SIPP in the UK, basically a DIY pension, although there's no requirement on you having to be self-employed to get one.
- loeg 9y ago
  Self-employed persons can also contribute to a Solo (or "Individual") 401(k), which has slightly more generous contribution limits as a percentage of self-employed income. And some W-2 employees can contribute up to $55,000 in their employer 401(k) as well via "after-tax" contributions.
  - mancerayder 9y ago
    And some W-2 employees can contribute up to $55,000 in their employer 401(k) as well via "after-tax" contributions. Can you elaborate?
    - loeg 9y ago
      https://www.madfientist.com/after-tax-contributions/ https://www.madfientist.com/after-tax-contributions/
jogjayr 9y ago
> You can contribute more if you have access to a 401k. The current limit there is $18,500. What's the argument for having two different tiers of retirement accounts? Just let everyone contribute $18k to an IRA and end 401Ks entirely. The selection of funds in most company 401K plans is meager and the funds are expensive because the contributors are, in effect, a captive market.
- harryh 9y ago
  As far as I can tell there is no good reason and it's an artifact of a somewhat confused legislative process. I definitely think the US system of tax deferred retirement accounts could be simplified significantly. I do think there is some advantage to the fact that it's possible to have a portion of one's paycheck go directly to a 401k without ever hitting your bank account. You can't currently do that with an IRA. It seems like that could be fixed though.
  - lotsofpulp 9y ago
    The simplest and in my opinion, the likeliest explanation, is that it gives large employers who can afford to offer 401k another advantage over smaller employers. Just like being able to offer tax exempt health insurance. It gets even stupider when you realize that IRAs have limits on deductibility when your spouse has access to 401k, but you don't.

by harryh 9y ago

nly 9y ago

> The argument against unlimited tax free contributions is that above a certain point it becomes a tax break only for the rich. That's where the lifetime cap comes in I guess. £1M isn't that crazy over a ~40 year timeframe for someone on a high income who isn't necessarily 'rich' and, at current annuity rates, won't buy you absolute luxury in retirement.

mancerayder 9y ago

Right, and oftentimes (but not always, anymore) companies contribute to your 401k as well. Also, as a self-employed person you can contribute up to $55,000 in the year depending on your income, in what's called a SEP IRA.

nly 9y ago
The SEP IRA sounds like the equivalent to a SIPP in the UK, basically a DIY pension, although there's no requirement on you having to be self-employed to get one.
loeg 9y ago
Self-employed persons can also contribute to a Solo (or "Individual") 401(k), which has slightly more generous contribution limits as a percentage of self-employed income. And some W-2 employees can contribute up to $55,000 in their employer 401(k) as well via "after-tax" contributions.
- mancerayder 9y ago
  And some W-2 employees can contribute up to $55,000 in their employer 401(k) as well via "after-tax" contributions. Can you elaborate?
  - loeg 9y ago
    https://www.madfientist.com/after-tax-contributions/ https://www.madfientist.com/after-tax-contributions/

jogjayr 9y ago

> You can contribute more if you have access to a 401k. The current limit there is $18,500. What's the argument for having two different tiers of retirement accounts? Just let everyone contribute $18k to an IRA and end 401Ks entirely. The selection of funds in most company 401K plans is meager and the funds are expensive because the contributors are, in effect, a captive market.

harryh 9y ago
As far as I can tell there is no good reason and it's an artifact of a somewhat confused legislative process. I definitely think the US system of tax deferred retirement accounts could be simplified significantly. I do think there is some advantage to the fact that it's possible to have a portion of one's paycheck go directly to a 401k without ever hitting your bank account. You can't currently do that with an IRA. It seems like that could be fixed though.
- lotsofpulp 9y ago
  The simplest and in my opinion, the likeliest explanation, is that it gives large employers who can afford to offer 401k another advantage over smaller employers. Just like being able to offer tax exempt health insurance. It gets even stupider when you realize that IRAs have limits on deductibility when your spouse has access to 401k, but you don't.