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Biden’s 401(k) Plan – Episode 254

Biden's 401(k) Plan

IRA Financial’s Adam Bergman Esq. discusses presidential hopeful Joe Biden’s proposed changes to the 401(k) plan if elected.

With the election a week away, Mr. Bergman continues discussing the Democratic nominee for the presidency, Joe Biden, and his proposed changes. Biden’s 401(k) plan changes may impact the way one saves for retirement. His hope is that all Americans have the ability to put away money for retirement, no matter their income level. Here’s Adam Bergman with a tax attorney’s take on the plan.

Biden’s 401(k) Plan

Recently, Mr. Bergman shared his first thoughts about Mr. Biden’s 401(k) plan in a previous episode of Adam Talks. This episode looks to expand on that one, with more research and some other thoughts about the proposed plan. Essentially, the plan looks to make it more viable for low- and middle-income families and individuals to put money away into a 401(k) plan.

The goal is to turbocharge savings for those in the two lowest tax brackets. The plan would give these individuals a bigger tax deduction via a tax credit when they save for retirement. Basically, it’s a 24% deduction.

On the other end of the spectrum, those who earn more than $400,000 annually will get a reduced amount of deductions they can take. The deduction would be slashed from 35% to 24% for these individuals. Everyone under that income threshold should not see an increase in taxes as well.

For this to even have a chance to happen, obviously, the Biden/Harris ticket must win the election. On top of that, the Democrats need to take control of the Senate to get this type of bill passed. Retirement reform is not a hot topic in this election, so there’s no guarantee that Biden’s 401(k) plan changes would ever see the light of day.

Mr. Bergman’s Take

Mr. Bergman doesn’t think this type of reform will ever come to fruition. The idea is great on paper. Everyone should be given the ability to save for retirement; not just the rich. Incentivizing lower income workers with a tax break is very appealing. But, you can alienate those high income earners, business owners and the like.

Lowering the amount the well-off can deduct may not be the best way to get this plan across. Business owners will always look out for themselves first. If the proposed plan cuts into their bottom line, they might get of 401(k) plans altogether. Further, while a tax deduction is great to encourage people to save, it may be a better idea to instead fund the 401(k) plan for them. The way the system works, a tax deduction might not be enough to get people to save.

TEFRA is a piece of retirement legislation that came out in 1982 and really bombed. It was the biggest tax increase in U.S. history. Not only did it change the tax landscape, but it affected the retirement industry as well. It dramatically cut the amount you could save in your 401(k) plan. This led to a major recession after a tax bill the previous year that actually cut taxes.

Mr. Bergman is worried that Biden’s 401(k) plan may lead to something similar. 2020 has been the craziest year in most of our lives. Messing with retirement system may not be in the government’s best interest. This plan, while decent, probably won’t work in the long run. The opposite effect may happen if it went into law. The retirement system, as whole, works. There’s no reason to change it, just to help out a fraction of the population.

Thanks for Listening!

We hope you found this podcast interesting and appreciate you taking the time to listen. If you want, you can check out our SoundCloud page for past episodes of Adam Talks. Be sure to check us out in the next few weeks as we look at the election results and prepare for end-of-year retirement planning.

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