401(k)’s could soon be undergoing a drastic “update,” depending on who is elected as our 46th president. Former Vice President and 2020 presidential contender Joe Biden has vocalized his intent to make 401(k)’s as beneficial for low-to middle-income workers as they have been for higher-income families.
When asked about Joe Biden’s plan, Jamie Hopkins, Director of Retirement Research at Carson Group, states, “They’re not necessarily taking away the benefit but reducing it for higher-income savers. You can make a stronger argument today that they should look at the Roth.”
It’s a well-known fact that the higher your income is, the higher your tax bracket, or the more taxes you must pay. However, through tax reductions, “breaks”, via 401(k) contributions, high-income earners have almost always been able to reduce their taxable income and grow their wealth simultaneously- an option that has not been available for lower-income earners.
Contributions to a 401(k) qualify as a deduction against one’s earned annual income. The more substantial your 401(k) contribution is, the less of your income is taxed.
This may sound like a win-win concept for everyone, except that lower-income earners will not have as much capital to contribute to their 401(k)’s, meaning they do not receive the same tax breaks, incentives, and opportunity to amass their wealth.
Under Joe Biden’s new 401(K) reform, a tax credit system would be used to replace the current tax deduction system. Biden’s proposed solution would be a fixed 26% tax credit for any funds deposited into a retirement account.
This plan limits the benefit for the highest earners and gives the benefit to the lowest earners.
If Biden’s plan comes to fruition, anyone contributing to a 401(k) would still receive a tax benefit. The question now is, what does this mean to those who might now be expecting a reduction of benefits?
This could be the time to rethink shifting assets and consider opening a Gold IRA.
Regardless of what changes are to come of our retirement plan laws and policies, it is always a great time to add diversification to your portfolio, especially in assets like gold that can act as a hedge against uncertain times like these.
Click here to learn how thousands of Americans are protecting and diversifying their investments with precious metals like gold in these uncertain times. Or call us at 800-462-0071 to receive your free custom-tailored Information Guide.