Nevin's Data "Points"

An interesting—and somewhat counterintuitive—report came out last week, one that cast doubt on the “common wisdom” regarding Roth versus traditional pre-tax savings. The assumption underlying the research [i] was that those who had not yet paid taxes on their savings (the traditional pre-tax savings) would be hesitant to tap into those savings and trigger taxes, certainly more so that individuals that had already paid those taxes. Instead, the research suggested that the opposite occurred; that individuals who had saved on a pre-tax basis actually withdrew more/sooner—but with a twist.  This they hailed as good news. They noted that the research suggests investing in a CT (current-taxed, or Roth) plan could help ease concerns about outliving funds—because they spend at a lower rate (though they saw this as a negative for those who saved on a deferred tax (DT) basis).  They even managed to find a silver lining in the “cloud” of faster spending by the pre-tax c...

Roth 401(k)s are more prevalent—and popular—than ever. But is that good—or bad—for retirement? A recent op-ed [i]  in  The Wall Street Journal  explored the potential implications— “What ‘Rothifying’ 401(k)s Would Mean for Retirees” — (subscription required), though the focus is on tax policy as well. You’ll remember that so-called “Rothification”—essentially the elimination of the pre-tax treatment currently accorded 401(k) contributions—was quite the controversial issue back in 2017 when the Republican-controlled House of Representatives was looking for ways to raise revenue to help pay for tax cuts. [ii]  And while it’s not been an active focus of late, it seems likely to resurface as the nation’s budget deficit widens, and the field of 2020 presidential aspirants seem determined to find ways to spend more or, in the case of the incumbent, collect less in taxes. ‘Out’ Comes  As for the WSJ treatment, I’ll spare you the short read (longer ...

The Plan Sponsor Council of America recently released its 60th Annual Survey of Profit-Sharing and 401(k) Plans , documenting increases in participation, deferral rates, target-date funds, automatic enrollment and advisor hiring, among other key trends. Here are five key trends highlighted in the survey that you may have missed. Automatic enrollment is still (mostly) a large plan thing. One of the most celebrated plan design features of the 401(k) era is automatic enrollment. Nearly as old as the 401(k) itself, once upon a time (when it wasn’t as popular) it was called a “negative election.” Regardless of the name, the concept has been extraordinarily effective at not only getting, but keeping, workers saving via their workplace retirement plans. However, adoption of the design, after a surge in the wake of the passage of the Pension Protection Act of 2006, now seems to have plateaued. A decade ago, only about a third (35.6%) of respondents to the PSCA su...

I made the switch to Roth for my retirement savings years ago – and I have long counseled younger workers, who were likely paying the lowest tax rates of their working lives, to do so as well. Pre-tax treatment has, of course, been the norm in 401(k) plans since their introduction in the early 1980s. On the other hand, the Roth 401(k) wasn’t introduced until the Economic Growth and Tax Relief Reconciliation Act of 2001, and even in that legislation wasn’t slated to become effective until 2006 (and at that time was still slated to sunset in 2010). Despite that late start, according to a variety of industry surveys (Plan Sponsor Council of America, Vanguard, PLANSPONSOR), roughly 60% of 401(k) plans now offer a Roth 401(k) option, and PSCA data shows that 28.6% of 403(b) plans already allow for Roth contributions. Participant take-up, which just a few years ago hovered in the single digits, is now in the 15-20% range. Here are five other things you may not know about the Roth 401(k...

It’s hard to believe, but the Pension Protection Act of 2006 will be a decade old next month. And it’s probably done more good for the nation’s retirement security than most realize. The PPA drew its name from the portions targeted at shoring up defined benefit plans (and PBGC funding, I suppose), though at the time I remember most people thinking it was an ironic name, in that it may have been intended to secure the pensions that were already in existence, but might well accelerate the demise of some on the cusp, and in any event was unlikely to help spur any new growth in that area. Some went so far as to call it the Pension Destruction Act. Indeed, at a recent panel session featuring the perspectives of a number of the Hill staffers who shepherded the at times controversial legislation through its passage, the emphasis was largely on the DB aspects that, though well-intentioned, had been overwhelmed (if not undermined) by the onset of the 2008 financial crisis and the “histor...

A research paper finds that introducing a Roth 401(k) option doesn’t have much impact on current plan savings rates — but what does that have to do with their preference for tax preferences? Well, according to “Does Front-Loading Taxation Increase Savings? Evidence from Roth 401(k) Introductions,” governments could actually increase private savings by taxing savings up front, rather than in retirement. This conclusion basically suggests that taking away the current 401(k) pre-tax contribution and replacing it with a Roth assumption would not only not decrease, but it might actually increase , retirement savings, and with no additional cost to the government. For years a key education element touted about 401(k) plan participation has been the ability of the individual to put off paying taxes on their contributions and on the earnings attributable to those contributions (and those of their employer, if any) until retirement, at which point they would ostensibly find themselves in a...

This is the time of year when many people both look back at the year just past—and ahead to the next with a fresh perspective. It’s also that time of year when many make lists. So, whether you’re looking to make some New Year’s resolutions, or just looking to improve your overall financial situation, here are 10 things to check off your 2013 list—and that can get your 2014 list off to a strong start. Deal with debt (see Savings Resolutions for the New Year ). Establish a savings goal for retirement (see Estimate “Ed” ). Save for retirement—at work, or on your own (see Saving for Retirement Outside of Work ). Save early so that your savings can work for you (see The “Magic” of Compounding ). If you do have a retirement plan at work, make the most of it (see Making the Most of your Retirement Plan ). Maximize your savings—see if you’re eligible for the Savers’ Credit (see Credit Where Credit is Due ). See if a Roth 401(k) makes sense for your situation (see To Roth or Not...