4 ms·

And for unfathomable (haha, well, is it really though?) reason retirement accounts are set up to mostly benefit people with very high wages whose employers (got

And for unfathomable (haha, well, is it really though?) reason retirement accounts are set up to mostly benefit people with very high wages whose employers (gotta have an employer, too, or arrange things so you're your own employer—man is this dumb, it's as if it's set up to disadvantage the poor and middle class) also provide a high match rate. Meanwhile most folks are lucky to get a 1 or 2% match, leaving them way under the max possible cap even if they put as much in as they can, personally, per year.

esotericn 7y ago
There are caps for contributing to tax-advantaged savings and pension accounts in the UK too. I wouldn't say that that 'disadvantages the poor and middle class'. It's the other way around - it disadvantages the upper-middle and wealthy because they hit the limit and have to find other ways to accumulate wealth.
- shantly 7y ago
  The way 401k retirement accounts are set up in the US, you can't get anywhere near the contribution limit on your own, you have to have huge amounts of employer contribution, beyond simple matching, even. It's like (cough) it's designed to mainly benefit top-tier professional class folks and non-owning-class upper managers while chaining people to traditional employment or complex personal tax arrangements. The other tax-advantaged account, the IRA, has a much lower total contribution cap. [EDIT] to be clear it's not an absolute disadvantage to the poor and middle class versus having no such system, it's just that the way it's structured the overwhelming bulk of the tax savings goes to people who are already very well off, and those "beneath" them cannot possibly, no matter how frugal or responsible or fairly-well (but not excellently) compensated, hope to touch the level of benefit the very-well-off derive from 401k accounts. It's impossible, thanks to the way they're structured. [EDIT EDIT] they're actually ideal for rich people who want to transfer ~$56k/yr to each of their kids (about $1.5m over 30 years), tax-free. I'd bet there's a further scheme one can work out to direct the investment of the fund such that the personal benefit is much greater than that, even (oh, kid of mine, you want to start a business? Funny, our 401k fund also "wants" to invest in it!). How? Employ them at one of your C or S corps (LLC or partnership won't let you get anywhere near the contribution limit, because... reasons? I dunno, it's a really dumb system if [cough] you're trying to make it broadly available to and useful for normal people) in one of the many positions near the top that're well-compensated but are so easy that lots of folks (stalk some from-money C-suite or "investor" types on Linkedin to see what I mean) seem to find time to hold one of them and also a few other "jobs" at the same time, so it won't look out-of-the-ordinary.
  - ghaff 7y ago
    >you can't get anywhere near the contribution limit on your own, That really seems like an overstatement. 401k contribution limits (without catch-up) are about $20K/year. That's no doubt more than most people save in a year but it's not that far out on the fringes of what mid-career professionals are/should be saving for retirement. I don't completely disagree with your broader point. 401ks (especially with significant contribution match) and IRAs (and ESPPs such as they still are) do tend to most benefit workers who are fairly well-compensated. But they're actually less of a big deal for top execs etc. for whom the dollar amounts are relatively small.
    - shantly 7y ago
      The total contribution limit is ~$56k/yr. $19k is the limit on what you, the employee (or LLC owner or partnership member) can contribute, which is exactly what I'm talking about—most of the money has to come from your employer if you want the maximum possible benefit. It's pretty rad if your "employer" is your (or your rich parents') C corp, or you're an owning member of an S corp that's rolling in money, though.
      - ghaff 7y ago
        There are also costs and various rules associated with administering 401k plans. I'm not an accountant or financial advisor so I'm not sure how effective using these sort of arrangements would be. (Of course, lots of money opens up a wide range of tax minimization and savings strategies.)
        shantly 7y ago
        My point is basically that at minimum 50% of the taxes foregone to support the 401k system[SEE EDIT] is going to people who definitely would have had an awesome—not just OK, not good, awesome—retirement no matter what. Not the poor or middle class. Functionally no-one in the middle class is getting five figures of contributed funds per year from their employer, let alone the ~$36k it'd take to max it out. Who are? Top-end professionals who can be self-employed in such a fashion that they own their "employer" (and again, LLC or partnership won't cut it, because reasons) and very well compensated corporate folks (chiefly management-tier). Plus family of rich people who're just (legally, but clearly via Some Real Bullshit) dodging taxes. [EDIT] OK so 50% is not necessarily right, obvious, I realized as soon as I posted, but the benefits are very disproportionately in the favor of people who aren't exactly the ones one might hope a government-supported retirement system would be mainly designed to help, and the best possible benefits aren't practically available at all to middle-class people even if they do somehow manage to put the actual total contribution limit away for retirement (they'll lose out on probably at least half the max benefit of the system, since they can only put ~$19k or $20k in tax-free themselves and probably only get low-thousands contribution from their employer at best, so the rest is getting taxed before being invested, and IIRC you can't even stack an IRA on top of a maxed-out 401k contribution)

esotericn 7y ago

There are caps for contributing to tax-advantaged savings and pension accounts in the UK too. I wouldn't say that that 'disadvantages the poor and middle class'. It's the other way around - it disadvantages the upper-middle and wealthy because they hit the limit and have to find other ways to accumulate wealth.

shantly 7y ago
The way 401k retirement accounts are set up in the US, you can't get anywhere near the contribution limit on your own, you have to have huge amounts of employer contribution, beyond simple matching, even. It's like (cough) it's designed to mainly benefit top-tier professional class folks and non-owning-class upper managers while chaining people to traditional employment or complex personal tax arrangements. The other tax-advantaged account, the IRA, has a much lower total contribution cap. [EDIT] to be clear it's not an absolute disadvantage to the poor and middle class versus having no such system, it's just that the way it's structured the overwhelming bulk of the tax savings goes to people who are already very well off, and those "beneath" them cannot possibly, no matter how frugal or responsible or fairly-well (but not excellently) compensated, hope to touch the level of benefit the very-well-off derive from 401k accounts. It's impossible, thanks to the way they're structured. [EDIT EDIT] they're actually ideal for rich people who want to transfer ~$56k/yr to each of their kids (about $1.5m over 30 years), tax-free. I'd bet there's a further scheme one can work out to direct the investment of the fund such that the personal benefit is much greater than that, even (oh, kid of mine, you want to start a business? Funny, our 401k fund also "wants" to invest in it!). How? Employ them at one of your C or S corps (LLC or partnership won't let you get anywhere near the contribution limit, because... reasons? I dunno, it's a really dumb system if [cough] you're trying to make it broadly available to and useful for normal people) in one of the many positions near the top that're well-compensated but are so easy that lots of folks (stalk some from-money C-suite or "investor" types on Linkedin to see what I mean) seem to find time to hold one of them and also a few other "jobs" at the same time, so it won't look out-of-the-ordinary.
- ghaff 7y ago
  >you can't get anywhere near the contribution limit on your own, That really seems like an overstatement. 401k contribution limits (without catch-up) are about $20K/year. That's no doubt more than most people save in a year but it's not that far out on the fringes of what mid-career professionals are/should be saving for retirement. I don't completely disagree with your broader point. 401ks (especially with significant contribution match) and IRAs (and ESPPs such as they still are) do tend to most benefit workers who are fairly well-compensated. But they're actually less of a big deal for top execs etc. for whom the dollar amounts are relatively small.
  - shantly 7y ago
    The total contribution limit is ~$56k/yr. $19k is the limit on what you, the employee (or LLC owner or partnership member) can contribute, which is exactly what I'm talking about—most of the money has to come from your employer if you want the maximum possible benefit. It's pretty rad if your "employer" is your (or your rich parents') C corp, or you're an owning member of an S corp that's rolling in money, though.
    - ghaff 7y ago
      There are also costs and various rules associated with administering 401k plans. I'm not an accountant or financial advisor so I'm not sure how effective using these sort of arrangements would be. (Of course, lots of money opens up a wide range of tax minimization and savings strategies.)
      - shantly 7y ago
        My point is basically that at minimum 50% of the taxes foregone to support the 401k system[SEE EDIT] is going to people who definitely would have had an awesome—not just OK, not good, awesome—retirement no matter what. Not the poor or middle class. Functionally no-one in the middle class is getting five figures of contributed funds per year from their employer, let alone the ~$36k it'd take to max it out. Who are? Top-end professionals who can be self-employed in such a fashion that they own their "employer" (and again, LLC or partnership won't cut it, because reasons) and very well compensated corporate folks (chiefly management-tier). Plus family of rich people who're just (legally, but clearly via Some Real Bullshit) dodging taxes. [EDIT] OK so 50% is not necessarily right, obvious, I realized as soon as I posted, but the benefits are very disproportionately in the favor of people who aren't exactly the ones one might hope a government-supported retirement system would be mainly designed to help, and the best possible benefits aren't practically available at all to middle-class people even if they do somehow manage to put the actual total contribution limit away for retirement (they'll lose out on probably at least half the max benefit of the system, since they can only put ~$19k or $20k in tax-free themselves and probably only get low-thousands contribution from their employer at best, so the rest is getting taxed before being invested, and IIRC you can't even stack an IRA on top of a maxed-out 401k contribution)