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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
by derekp7 3y ago
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.
- k310 3y agoI 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.
- BXlnt2EachOther 3y agoone 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).
- xboxnolifes 3y agoIf 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.
- drc500free 3y agoI 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.