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Who’da thunk it?

How can we still call something that causes people to pay more taxes tax-advantaged?

By Chris Carosa | Updated on September 12, 2013
<a href="http://www.freedigitalphotos.net">Photo credit: FreeDigitalPhotos.net</a>

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. 

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