OPINION: This year’s “high earner” may not be next year’s high earner. That makes 401(k)s even more important.
These tax-advantaged savings accounts, which date back to the Employee Retirement Income Security Act of 1974, let individuals save thousands a year toward their golden years with certain tax advantages. They are now the cornerstone of America’s retirement system. Investors, for example, held $24 trillion in assets in such accounts at the last count.
If we exclude “high earners” each year from tax breaks on retirement savings, we will create a perverse situation: Someone with a steady income of, say, $70,000 a year will get help saving, while someone who earns the same $700,000 over 10 years in a string of booms and busts won’t.Some of those criticizing 401 and IRAs have already retired. So there will be no loss to them, no matter what happens to these plans.
“Most studies…have found increasing income volatility for American households in general since the 1970s,” reports the Aspen Institute. “The increase in volatility has been the highest for households at each end of the income distribution ,” it adds. And that’s just within short periods. When you look across full careers, many middle-class careers look like Egypt in the Book of Genesis: A string of “fat” years, when money pours in, followed by a string of lean ones, when it pours back out.
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