Here’s one of my biggest personal finance pet peeves: one of the biggest source of tax deferral for the middle class, the 401(K), is utterly dependent on the employer.
Doesn’t this arrangement feel a little anachronistic in an age where careers may be characterized by frequent job changes and/or stints at self-employment?
I didn’t have a 401K for 2008. My company is talking about starting a 401K in the next several months, so I’m hoping that will work out. All that TAXES that’s being taken out of every paycheck is enough to make me see red. I know, I know, public goods and all that jazz… but please.
Why can’t the government set up a portable tax-deferal vehicle that allows an individual to defer W2 earnings? It’d just look like the IRA, with the contribution limits as a 401K. Let’s call it a “private 401K” here.
In essense, instead of the company administering the 401K plan, the individual can choose any provider such as Fidelity, Vanguard, Scottrade, ING, etc. Then, if the employer decides to do so, it can contribute a “match” in the private 401K.
Under this scenario, ANYONE with an earned income would be eligible to contribute $21,500 in tax-advantaged accounts for 2009: $16,500 in a private 401K, and $5,000 in an IRA. The government is worried about people saving adequately for retirement. Wouldn’t this be a step in the right direction?
I can’t imagine that this idea hasn’t been proposed before. On another note, I really think that healthcare insurance should be de-coupled from employers as well.