That’s what I was asking, why are contribution limits a bad thing/too low?
How many in pre-retirement make catch-up contributions to 401K
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Because the distributions will always be subjected to income tax and people shouldn't have to invest in high risk to save enough for retirement.
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Good idea. Still, State of residence has no bearing on the uncertain Federal Tax you'll pay on 401k withdrawals. But you must know this so this is for other reader's benefit.
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You have to take risk to save for retirement. High risk is not the same for everybody as you know. But if you can't tolerate a risk, you'll have to save much more of the low risk paycheck. People have done it. But risk is exhilarating when you risk your own money in your own idea and reap a reward. Makes you more attractive too. Just much more fun. Take a risk on a house flip; or a car needing repair; or anything- do it once and you'll be on your way. Failure? You can't succeed without failure. Kind of a riddle , really...but true.
One shouldn't be forced to accept risk they're not comfortable with in order to save for retirement.
If you want to save half your pretax income for retirement you should be allowed to.
What's high risk? General market return like 8% or something more aggressive?
I'm asking because the 2024 contribution limit is $23K and $7,500 catch up contribution over 50 years old. At 8% return, if someone maxed their contribution from 25 years old to 65 they would have $6.6M at 65. If they didn't start until 30 they would have $4.5M at 65. That's without the contribution limit going up over time, which it will.
I'm all for saving as much as one wants to, I'm just unclear why the tax deferred or tax free growth in the case of a Roth needs to be higher (or unlimited).
I'm not making catch up contributions currently but I do have my 401k contribution set to increase by 2% automatically every year and have since 2017. In a couple of years, I will be at the max contribution for my age. One thing I've changed starting in 2024 is I'm now contributing the majority % of my 401k to the Roth 401k option, and only the % that the company matches to the pre-tax 401k. When I retire, I'll have a decent amount of money that I won't owe any tax on. The Roth 401k option is a fairly new offering from my employer.
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Well to the extent that you believe the tax code and a progressive income tax is ethical, then there needs to be some limit. Possibly the current limit is too low, but the law says the federal government gets the majority of their money through income tax, so deferral is basically a late payment vs someone that pays on time. If everyone deferred all income there would be no tax money.
Now if you want to say they squander our tax dollars anyway and don't need anymore and we should abolish the income tax completley - you will get no argument from me on that.
You can always save for retirement after its taxed. No law against it.
High risk is subjective but you're missing the point. It's really about freedom. Freedom to invest how ever much you want where you want.
This doesn't just pertain to 401k but IRA's(Roth/Traditional) as well.
The whole concept of a catch-up contribution at age 50 is so stupid. Why 50 and not 40 or 30?
Was about to say that. You can save outside of a retirement fund, you just can't reap the tax benefits, so you lose some percentage.
If one has a 401k account, and a Roth, they should be able to put money into whatever stock/ETF/bond/etc that they want at the same institution, I would think. Just has tax implications which may make tax time more fun.
Wife was just complaining about doing taxes this year, as it got complicated for us. Not sure we want to get a pro to do it, but I sure made it complicated with cashing out some stocks. Now that's a downside.
The lack of income tax revenue has never been a deterrent to government spending.
Yes but your after tax investments are subject to capital gains (long/short).
We disagree about a core point which is fine. But to be clear, I'm not sure why there is/should be an inherent freedom to defer taxes or create limitless tax free growth. Your point makes me basically ask, why should there be any tax deferred or tax free growth. We could all just be free to save for retirement with after tax dollars, whose growth was taxed just like a traditional investment account.
It's not tax free but tax deferred (Roth notwithstanding). You're also foregoing access to those funds for a set period if time. So the saver is also deferring consumption which is probably the real reason behind these limits. We're also talking about a potentially huge amount of savings based rather than credit based capital deployed in the economy. That's a win for everyone.
Savers already have a hard enough time trying to get ahead of inflation. Why make life more difficult for them?
It’s still in the stock market, it’s still applicable to RMD and you can’t get complete control of it until you leave that employer.
No, it’s not necessarily in the market - you can invest in IRA in whatever underlying investment you like, it could be bonds, it could be individual stocks, it could be mutual funds, it could be mutual funds that hold stocks, it could be mutual funds, that hold bonds, it could even be physical gold, or it could be cash at a bank.
That’s the whole point of the Rollover, you gain all of the investment options by moving the money out from under your company control to the fiduciary that has the investment options that you desire.
You’re still subject to RMD, but that doesn’t happen until you’re 72 years old. In the meantime, your investment has grown tax-free. When we’re talking decades of growth, the effect of taxes on that growth can be devastating.
Roth accounts were my exact point, which is why I listed tax deferred or tax free. FYI - my example above could all be in a Roth 401k, assuming they continue to exist, and all that savings could be tax free, with no RMD requirements. And wouldn't even include IRA (of course potentially Roth IRA) contributions or a company match to a 401k.
Thing is, how does removing contribution limits achieve that goal? The stats are somewhere in the 15% range of participants in 401k plans max out their contributions. Uncapping or increasing contribution limits are not going to suddenly impact the 85% of participants that today, are not hitting the limits, or people that are not/can not participate in a 401k. So there is a pretty small portion of the population removing contribution caps would impact, and my guess is if you are hitting that contribution cap today, you are looking for a way to defer your tax liability, tax free growth or squirreling money you aren't using as discretionary spending today already, because you are not looking to get whacked on taxes.
On a personal basis I'm okay with that, and would probably chase it down if the caps were increased, because I do every year. What gives me pause, and causes me to ask the question, is other than benefiting those 15% of participants that can afford it and want to take advantage of it for themselves, what's the benefit, particularly if it was limitless.
Because the contribution limits need to be raised for a 401K and IRA.
Some folks can easily put $50K away for retirement every year.
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Gets back to the whole reason for 401K/IRA. They came out in the 70's to offset the decline of private pensions. They also had the expectation to be portable - because people were starting to change jobs more frequently - so the idea is you rolled from one employer to the next. And the intention was also the employer "matched", or was the idea - to further incentivize people to do it. Many employers don't match anymore either - mine doesn't. So the original intent has kind of broken down anyway. Less than half of the public saves anything, and this is pretty much true for every age group.
Benefit for the state was that people were to be able to take care of themselves in retirement. Social security was never intended really to be a sole provider in retirement.
Additionally, the savings were going to be available as capital to help fund business, which they don't need anymore - the fed can just print it.
Which is my reasoning for thinking there going to want to figure out how to claw some of this tax deferment back in the future. They don't care about you saving. Only a small percentage of people actually use them - so they can use the "tax the rich" ploy. And the market doesn't need the capital, but they can certainly use the revenue.
I am happy to have the tax advantage - but in the end its really no different than a $7000 EV credit. Some use it. Some don't. Government picking winners and losers is not a good thing, even when it benefits you.
Benefit for the state was that people were to be able to take care of themselves in retirement. Social security was never intended really to be a sole provider in retirement.
Additionally, the savings were going to be available as capital to help fund business, which they don't need anymore - the fed can just print it.
Which is my reasoning for thinking there going to want to figure out how to claw some of this tax deferment back in the future. They don't care about you saving. Only a small percentage of people actually use them - so they can use the "tax the rich" ploy. And the market doesn't need the capital, but they can certainly use the revenue.
I am happy to have the tax advantage - but in the end its really no different than a $7000 EV credit. Some use it. Some don't. Government picking winners and losers is not a good thing, even when it benefits you.
Yup, totally get that some folks can push $50K or $100K to for retirement (or for purposes that they want to leverage 401ks, IRAs, etc. to be more exact) I'm unclear what the benefit is or the reasoning that the current level of tax advantages provided needs to be enhanced.
I know you didn't say eliminate the cap altogether, but some folks could contribute their entire income, just looking for the logic to incentivize that type of behavior on a societal level.
Financial flexibility. Say a couple saves 5 yrs to buy a house and they then want to make up for those years in 401k contributions. There's a laundry list of reasons for wanting such flexibility
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