Well, well, well, look’s who trying to screw up your 401(k) while holding on to their own very nice retirement plans. Congress, that’s who. Following its success in neither nor replacing the Affordable Care Act/Obamacare, we can now look forward to tax “reform,” including how retirement savings are taxed.
As The Wall Street Journal reports, Gary Cohn, director of the White House National Economic Council, met with the Senate Banking Committee recently. Guess what they discussed? Making 401(k)s and other retirement savings plans like Roth IRAs. That is, you would pay income tax on money you put into the plan, but post-retirement withdrawals would be tax-free (when you will likely be in a lower tax bracket).
Why is this a terrible idea for midlife women? Because, as everyone except Congress already knows, saving for retirement is hard. Tax incentives help. By the time we dames reach our ‘50s, we tend to be behind the men in retirement savings—even though we are better at saving and not making stupid investment decisions. Damn it, we need the tax incentive to help us save. Don’t touch our 401(k) tax break, Congressional dude bros!
A 2015 Vanguard report found that women are not only better at participating in 401(k) plans, but better at putting money into them. Seventy-three percent of eligible women participated in 401(k) plans, versus only 66 percent of men. Of those making $50,000 to $75,000 per year, 81 percent of women participated in their 401(k) versus 62 percent of men. In the $75,000-$100,000 bracket, 86 percent of women participated, versus 70 percent of men.
We save more, too. Women put away 7 percent to 16 percent more of their income than men. And, women are less likely to engage in frequent trades or excessively risky investments that can bring returns down.
Despite our solid saving habits, men still come out ahead with average account balances that are 50 percent higher than women’s. The average account balance for a man last year was $123, 262. Ours was only $79,572, largely because women make lower salaries on average and are more likely to take unpaid leave to take care of children or aging parents.
In case you need another reason to be angry at the prospect of losing a very important tax benefit, take a look at Federal Employees Retirement System (FERS) that members of Congress belong too. Only about 13 percent of employees nationwide are covered by both a 401(k) and a traditional pension that assures stable, lifelong income, according to the Center for Retirement Research at Boston College. All 535 members of Congress are.
We don’t know for sure what Congress or #45 plans to do to screw up our retirement savings. What you can do in the meantime is 1) max out your contributions ($18,000 in 2017); 2) try to sock away 12-15 percent of your gross income; and 3) consider target funds or other professionally managed accounts that can diversify your portfolio more effectively than you can on your own; and 4) work with a Certified Financial Planner (CFP) who works with a trustworthy organization.