(The Wobblier 3 Legged Stool- 4/15/2019 and Retirement Savings: a wobblier stool - 6/12/2018)
At the time, the three "legs" of a comfortable retirement stood on having... a pension; personal savings and social security.
Times have rapidly changed. Company pension plans have gone the way of the dodo; social security is a wobbly leg of the stool and retirement savings goals during this inflation period are more difficult to achieve.
What remains is the third leg of the stool, the 401(K) which has "replaced" the pension plans previously offered by companies.
Note: There is also the IRA (individual retirement account). What is the very basic difference between a 401(K) and an IRA? You do not need to have an employer to set up an IRA account.
The 401(K) and the IRA each has its own set of rules. It is beyond the scope of this article to discuss individual differences.
The current potential change to a person's 401(K) is that a company may automatically enroll their employee (either full time or in some cases part time) into a 401(K). The employee then has the opportunity to "opt out" of the employer sponsored plan (or change the amount of their contribution.)
Opt in or Opt out - what is the difference? ( In VERY simple terms)
Opt In -Previously, employees had to (in most cases) opt in to an employer sponsored 401(K) plan. They agreed in writing to have a percent of their salary put aside for savings. The opt in required some action on the employee's part.
Opt out - the employer/company automatically places an employee into the 401(K) plan. The employee then must take some action to "opt out" of the plan,,,that is, the employee decides to not participate in the company sponsored 401(K)plan.
It is believed that by making the 401(K) enrollment "automatic", that employees will remain in the employer-sponsored plans and thus save more money towards retirement.
Keep in mind that the 401(K) plans are "tax deferred", but not tax free. You do not pay taxes on the funds in the 401(K) plan until some time in the future (presumably when your taxable income is reduced).
Going Forward: Will there be the potential for the government to 'dip into' the 401(K) plans, through some taxing mechanism? Will there be justification to 'equalize' 401(K) plans?
These questions remain to be answered.
Consult with a professional when you have questions about your retirement accounts.
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For additional reading about proposals for 401(K) and retirement plans:
Big changes are coming to your 401(k). Here’s what you need to know
By Nicole Goodkind, CNN Business (Updated), Wed. April 6, 2022
President Biden’s Proposed Changes to 401(k) Plans
U.S. News. The 401(k) tax deduction could be replaced with a tax credit.
By Rodney Brooks (Jan. 22, 2021)
Congress Isn’t Finished Coming After Your Retirement Money And Estate
Bob Carlson Senior Contributor. Forbes (Retirement) April 19, 2021