Today, 60 percent of U.S. households have no money in a 401(k) or similar retirement account, and the benefits of 401(k)s are skewed toward the wealthiest Americans, a recent report by the Government Accountability Office found.
Do you believe the above statement?
The first part appears to be true. Saving for anything beyond tomorrow’s latte appears absent from many Americans DNA.
But what about the “benefits of 401(k)s are skewed toward the wealthiest Americans” part?
Isn’t it obvious that any tax-favored program will provide a greater benefit to the people who pay the most in taxes (also meaning higher skilled jobs)?
The other side of that equation is that since distributions are taxed as ordinary income, the “wealthiest” Americans also pay a greater portion of their retirement income in taxes. So, greater tax benefit when saving & and greater tax liability when using your money in retirement.
Such qualified plans also contain restrictions that limit the benefits for higher compensated workers while most 401k plans are designed so that virtually any worker can fully benefit from an employer matching contributions.
Of course, these facts are rarely reported in retirement stories. And other vehicles to save for retirement are often ignored. What happened to myRA specifically designed for the worker without a 401k and lower income?