Why this man says 401(k) plans no longer make much sense for savers
The tax advantage of a 401(k) depends on 4 factors, all of which have changed dramatically since 1980 to the detriment of 401(k)s, says Aaron Brown.
By Aaron Brown|July 24, 2020 at 02:40 PM
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(Bloomberg Opinion) –The 401(k) retirement plan was authorized by the Revenue Act of 1978, which took effect in 1980, but its real genesis is the 1974 Employee Retirement Income Security Act, which fixed the problem of underfunded defined-benefit plans so thoroughly that private employers stopped offering them. Benefits consultant Ted Benna came up with a way to use the 1978 Act for a tax-deferred, defined-contribution plan and the rest is history.
The tax advantage of a 401(k) depends on four factors, all of which have changed dramatically since 1980 to the detriment of 401(k)s. For a median-income married couple with two children:
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