Biden retirement proposal would upend traditional 401(k) plans – By Doug Sword (Roll Call) / Aug 24 2020
Instead of pretax contributions that provide bigger tax benefits to the rich, everyone would get flat tax credit
A little-noticed feature of Democratic presidential nominee Joe Biden’s tax plan would flip the incentive structure of a retirement system grounded for nearly a century on the tax deductibility of saving.
The former vice president’s “drastic” proposal, in the words of one industry lobbyist, would upend existing tax preferences for retirement saving in 401(k)-style plans. The Investment Company Institute, which represents mutual funds, exchange-traded funds and other investment vehicles in the U.S. and abroad, has already promised opposition.
Under current law, workers contribute pretax dollars and thereby reduce their annual taxable income, but they pay full freight when funds are eventually withdrawn in retirement. The upfront tax break is larger for richer households, however, since deductions are more valuable the higher one’s tax bracket is.
For example, take a single filer in the top 37 percent bracket making $600,000; for each $1,000 she contributes to a 401(k) plan, her tax deduction is worth $370. A single filer earning $60,000, however, would be in the 22 percent bracket and only receive a $220 tax break for that same $1,000 contribution.
Continue to article: https://rollcall.com/2020/08/24/biden-retirement-proposal-would-upend-traditional-401k-plans/
