Have you seen these comments here and there? I've seen them. I've seen them in LinkedIn groups. I've seen them occasionally from the folks I interview. I've seen them from experienced pros and from well-meaning amateurs. It's a comment that goes something like this: "The 401(k) tax advantage is a myth." (You can see some of the comments from industry veterans in "Fact or Fiction? Slaying the Myth of the 401(k) Tax Advantage Myth," FiduciaryNews.com, Sept. 10, 2013).
The argument against calling 401(k) plans "tax advantaged" is really quite simple. In the old days, when we had many more tiers to our tax rates and those marginal rates were much higher, saving money in a tax-deferred vehicle made obvious sense. Back then, having experienced two generations of high progressive tax rates and more than a decade of economic stagnation, the world knew it must lower tax rates to "rise the tide that lifted all boats." It was therefore common sense that tax rates would only go lower.
Today, that sense is not so common. With only a few tiers and the foreboding success of political campaigns based on class warfare, the tax advantages of saving in a 401(k) plan have slipped the surly bonds of earthly economics. There's a growing consensus now that we'll be lucky if our tax rates remain the same when we retire. Many fear they'll be higher.
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Christopher Carosa
Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).
