‘The tax advantage of contributing to a 401(k) would be reduced for higher earners and increase for low and middle earners.
The creation of an automatic 401(k) for workers without access to a workplace retirement account.’
My friends tell me where this is wrong. Anything to get those workers a $500k nest egg asap would be good. Didn’t read the article.
This plan is NOT about taxing 401k money (I’m not saying that won’t happen, just that this isn’t doing so). Currently money contributed to a 401k is not taxed — a full deduction is allowed for such contributions. Under Biden’s plan, there is no more deduction, but you receive a 26% tax credit on contributions.
This would benefit anyone whose marginal tax rate is lower than 26%. A deduction is mathematically equivalent to no deduction plus a credit equal to your marginal tax rate. If you.pay 26%, you break even. Essentially it amounts to paying people to fund their 401k. (For most people, since most don’t pay 26% taxes). Obviously those who earn enough to pay over 26% taxes would foot the bill.
Probably it will be popular since it benefits more people than it harms, but it certainly is a tax increase on higher income Americans. I would personally benefit, but a tax increase is never a good idea.
So, that $500k is in Zimbabwean money?