Comment by OkayPhysicist
Comment by OkayPhysicist 4 days ago
The 401k statute didn't actually grant any additional abilities to people: It set limits on a tax dodge you could already do. If I'm a CEO at $MEGABUCKS, and I make vastly more money than I need each year, I'm paying in a high tax bracket. I could instead strike a deal with my employer: cut my pay in half, and then keep paying me after I stop working here (pausing payments if I get another job), until the difference between what I would have made and have made is eliminated. All perfectly legal. But what I've done is taken money that was destined to taxed at a high tax bracket, and deferred it into a lower one (by spreading it across multiple years).
401k identifies this loophole and sets limits. Setting contribution caps, limiting withdrawals until retirement, etc. Then they incentivized offering it to the poors, too, because working out an ad-hoc agreement like that is the sort of shit only really high power people in a company have the opportunity to do.
In short, the primary purpose of 401ks wasn't to benefit the middle class, it was to slightly reign in the rich.
> 401k identifies this loophole and sets limits
This loophole is very much alive today. I've recently worked at a large public company where the company allowed any percentage of pay to be deferred into the future.
The regular workers couldn't afford to do this of course, but the executives making many millions would defer most of their pay into the far future (presumably after retirement) to pay very little tax today.