401k millionaires

[Shaul]

So we are to assume that these people did not benefit from anything state-funded in their lives and careers? That they did not benefit at all from the apparatus of social welfare and state-funded amenities and institutions?

Yes, we can assume that they receive no more government assistance than anyone else, since there is no evidence to the contrary.

 

[Shaul]

It's a tax-deferred retirement savings plan. Typically, contributions are matched (up to some maximum) by the contributor's employer.

Income used to contribute to a 401(k) plan isn't taxed when it's first earned; instead, it's taxed as it's withdrawn from the account in retirement.

Edit: in Canada, a similar scheme is called an RRSP (registered retirement savings plan).

Edit 2: As a non-American myself, I don't understand Americans' weird fascination with using the section number of the law that enables a thing instead of giving the thing a meaningful name (e.g. 401(k), 501(c)3).

Don’t forget that it also gives tax reduction, not just tax referral. By deferring taxation on higher tax rate income but then receiving the dispersions at a lower tax rate there is a net tax reduction.

 

[Shaul]

I don't think the idea is to encourage anyone to be rich; I think the idea is to leave everyone exactly where they are but justify looking down on the poor.

Not everyone, just those wise enough to save.

 

[Shaul]

Can someone explain to this foreigner what 401(k) means, exactly?

The name comes from a section of the U.S. tax code that covers them. These are accounts designed for tax deferral for retirement (primarily). By accepting government guidelines and restrictions private individuals, through there employers usually, can enjoy tax benefits such as tax deferment on both income and compounding interest on fund assets.

 

[9-10ths_Penguin]

Don’t forget that it also gives tax reduction, not just tax referral. By deferring taxation on higher tax rate income but then receiving the dispersions at a lower tax rate there is a net tax reduction.

That depends on your tax bracket and tax rates now and in retirement. I agree with Phil Ferguson on this:

- why would you plan to have less income in retirement? If that ends up being what happens, yeah, you'll have to deal with it, but why make that your objective?

- tax rates tend to go up, especially over decades like we're talking about with retirement planning. Why bet that they won't?

 

[9-10ths_Penguin]

Not everyone, just those wise enough to save.

See... this is the sort of thing I was getting at: insinuating that people with money are intrinsically better (in this case, wiser).

 

[Kangaroo Feathers]

OP remarkably quiet

 

[Thermos aquaticus]

The article shows that anyone can be a millionaire all on their own.

It shows that it is much easier for some people to be millionaires than others.

Government assistance is not needed, indeed government assistance typically keeps people in poverty.

401k's are government assisted since they are tax deferred. Also, a lot of government assistance goes to millionaires in the form of subsidies.

What I find disgusting are those people that want to punish these people for saving well by wanting to seize (aka tax) their money for the government.

Taxes aren't a punishment.

 

[9-10ths_Penguin]

https://www.cbsnews.com/news/americans-with-1-million-saved-sees-a-big-jump/



The article shows that anyone can be a millionaire all on their own.

Does it?

...or does it show that luck and your starting point plays a huge role in how you end up?

Plenty of employers don't offer contribution matching, or don't allow part-time staff to get a 401(k). If someone does manage to put together a full time income out of 3 part time jobs and does save for retirement, they're still going to be 50% behind someone with an employer-matched 401(k), all else being equal.

And if they apply themselves, go to college part time as they can afford it, and get a degree 10 or 20 years after their more affluent peers so they can get an office job with an employer-matched 401(k), they'll have missed out on those 10 or 20 years of employer contributions.

 

[Shaul]

That depends on your tax bracket and tax rates now and in retirement. I agree with Phil Ferguson on this:

- why would you plan to have less income in retirement? If that ends up being what happens, yeah, you'll have to deal with it, but why make that your objective?

- tax rates tend to go up, especially over decades like we're talking about with retirement planning. Why bet that they won't?

The difference in tax brackets is actually what creates the tax break. Follow this example: a worker saves income which would have been tax at his highest bracket (say 22%), but when he starts receiving withdrawals after retirement those would be taxed at a lower rate (say 10%). Hence a tax rate reduction.

So the choice is would you want to be taxed at 22% or wait until later and be taxed at 10%?

 

[Shaul]

See... this is the sort of thing I was getting at: insinuating that people with money are intrinsically better (in this case, wiser).

Not really. It insinuantes that those people that got rich by using something others failed to use are wiser. Not all rich people got that way by using 401ks. But some poor people could have become rich who didn’t because they didn’t use them. 401ks are one of the few mechanisms available to ordinary people to amass wealth. If you don’t want to use them, that’s your business. I know they work.

 

[9-10ths_Penguin]

The difference in tax brackets is actually what creates the tax break. Follow this example: a worker saves income which would have been tax at his highest bracket (say 22%), but when he starts receiving withdrawals after retirement those would be taxed at a lower rate (say 10%). Hence a tax rate reduction.

So the choice is would you want to be taxed at 22% or wait until later and be taxed at 10%?

Think about why the tax brackets are different: because you’re planning to have less money in retirement.

 

[9-10ths_Penguin]

Not really. It insinuantes that those people that got rich by using something others failed to use are wiser. Not all rich people got that way by using 401ks. But some poor people could have become rich who didn’t because they didn’t use them. 401ks are one of the few mechanisms available to ordinary people to amass wealth. If you don’t want to use them, that’s your business. I know they work.

An employer-matched 401(k) typically isn’t available to people working part time, working contract, or doing “gig economy”-type work.

You have to get to at least a certain level before you can access this perk.

 

[sayak83]

It's a tax-deferred retirement savings plan. Typically, contributions are matched (up to some maximum) by the contributor's employer.

Income used to contribute to a 401(k) plan isn't taxed when it's first earned; instead, it's taxed as it's withdrawn from the account in retirement.

Edit: in Canada, a similar scheme is called an RRSP (registered retirement savings plan).

Edit 2: As a non-American myself, I don't understand Americans' weird fascination with using the section number of the law that enables a thing instead of giving the thing a meaningful name (e.g. 401(k), 501(c)3).

Don't tell me, it was an absolute nightmare when I was there. And I am reasonably intelligent....

 

[Thermos aquaticus]

Not really. It insinuantes that those people that got rich by using something others failed to use are wiser.

You can't fail to use a program that isn't offered to you.

But some poor people could have become rich who didn’t because they didn’t use them. 401ks are one of the few mechanisms available to ordinary people to amass wealth. If you don’t want to use them, that’s your business. I know they work.

When you have to choose between rent and a 401k, they are going to spend it on rent so that they aren't homeless.

 

[9-10ths_Penguin]

Relevant, I think:

You have to be rich to be poor.

That's what some people who have never lived below the poverty line don't understand.

Put it another way: The poorer you are, the more things cost. More in money, time, hassle, exhaustion, menace. This is a fact of life that reality television and magazines don't often explain.

So we'll explain it here. Consider this a primer on the economics of poverty.

"The poor pay more for a gallon of milk; they pay more on a capital basis for inferior housing," says Rep. Earl Blumenauer (D-Ore.). "The poor and 100 million who are struggling for the middle class actually end up paying more for transportation, for housing, for health care, for mortgages. They get steered to subprime lending. . . . The poor pay more for things middle-class America takes for granted."

http://www.washingtonpost.com/wp-dyn/content/article/2009/05/17/AR2009051702053.html

 

[Shaul]

An employer-matched 401(k) typically isn’t available to people working part time, working contract, or doing “gig economy”-type work.

You have to get to at least a certain level before you can access this perk.

While it is true that not all employed people in the U.S. are eligible for a 401k plan, there are other retirement savings plans available for such people that also feature tax deferral for contributions and compounding of interest within the account. This would include plans such as IRAs, SEP, 403b, and others. Some don’t offer an employer contribution match that the 401k plans offer (although some do), nonetheless there are retirement plans available for almost every employee or self employed person. So the lack of access to a 401k plan is not really any excuse for not saving for retirement.

 

[Koldo]

While it is true that not all employed people in the U.S. are eligible for a 401k plan, there are other retirement savings plans available for such people that also feature tax deferral for contributions and compounding of interest within the account. This would include plans such as IRAs, SEP, 403b, and others. Some don’t offer an employer contribution match that the 401k plans offer (although some do), nonetheless there are retirement plans available for almost every employee or self employed person. So the lack of access to a 401k plan is not really any excuse for not saving for retirement.

But not having enough money to save is.

 

[Shaul]

You can't fail to use a program that isn't offered to you.



When you have to choose between rent and a 401k, they are going to spend it on rent so that they aren't homeless.

For those that aren’t eligible for a 401 k there are alternate tax deferred retirement plans available. So that is not excuse to not prepare for retirement. With sound retirement planning there is rarely any need to choose between housing and retirement saving. You may not agree, but nonetheless that is true.

 

[Shaul]

But not having enough money to save is.

Even the poorest in America can improve their retirement saving plans. That is the truth. There are always options and choices. Those that choice to do nothing will reap the results of having nothing in retirement savings. It is that simple.