Comment by jogjayr | Hacker News Reader

Comment by jogjayr | Hacker News Reader

> To wit, your employer, not you, chooses your 401(k) investment options and your choices may be less than optimal either because your employer doesn't know any better or because your employer's interests are different from yours.

This, for me, is the biggest issue with 401Ks - the lack of fund choices because the contributors are, in effect, a captive market. You have to change your job to change your 401K options.

This is just one aspect of a ridiculously complicated retirement saving system with separate rules for IRAs, Roth IRAs, Roth 401Ks (no idea what those are), self-employed 401Ks and who knows what else. Is it not possible the sheer complexity is a factor in turning people off retirement planning early in their career?

It also sets up a two-tier retirement and taxation system. Those lucky enough to work at employers that offer 401K plans are able to deduct $18k (and rising) from their taxes but everyone else can only deduct $5.5k (hasn't risen in the past 6 years) and a lucky few can contribute to both 401Ks and IRAs (but maybe not take deductions for both).

Don't even get me started on the backdoor IRA, 72t and all the other ludicrous shenanigans you have to go through if, by chance, you're a diligent saver who wants to stop working and access your retirement funds before turning 59.5.

Compare that to the Canadian RRSP system, where you can contribute 18% of your previous year's earnings tax-free up to a limit. And (I think) you can manage your own funds the way you want, take them to a different financial institution if you're not happy, etc.

I don't get why there have to be 401k and the various IRAs. There should be one system for all. Especially 401k is the same stupidity that employer based health insurance is. Instead of the individual choosing the best option the employer, whose interest is certainly not the same as the employee's, makes the choices.

At this point, I'm assuming it's because it gives larger employers an advantage and hence they lobby to prevent an even playing field.

It's probably what you say and also a subsidy for capital management companies. They can force people to buy into high-fee funds.

I would think that employers would be happy if they didn't need to manage 401K plans. It would be one less thing for them to do if employees just signed up for automatic IRA deductions with payroll and provided IRA account numbers in case of employer matching.

IRA limits are $5k, 401k limit is $18k. Right now, smaller employers have higher per employee costs for administering 401k than bigger employers. I wouldn't be surprised if large employers were even compensated in some way for access to manage (collect fees) from all of the large employees' 401k funds.

I meant replace 401Ks with IRAs wholecloth and raise the limit to $18k. Is it fair that some people are allowed to save (and deduct) $18k for their retirement while others are only allowed $5.5k?

If your employer has an RRSP matching plan, any matched contributions (both your contribution and the employer matching funds) are generally tied to a specific provider with limited options, relatively high fees, etc.

But any separate contributions can be managed as you want, with some (broad) limits.

Thanks for clarifying that.

All savings and investments should be tax deductible. Then you don’t need this bureaucratic nonsense.

Except that some of the economically best taxes are land-value & wealth taxes — and what are savings & investments other than wealth, often in the form of land?

I actually support LVT, as well as analogous taxes on resource extraction and other forms of rent-seeking. So if you invest in the oil and gas sector, you’d be investing in companies that will have massive tax liabilities and lower profits, which will reduce the value of their stock and the level of dividends you receive. And yeah, if you buy some land with your savings—well, that saved income turns into taxable income and then you’re on the hook for LVT as long as you keep that land.

Then there is the SEP IRA, which is an IRA with large limits but only your employer can contribute. I’m very thankful for my Fidelity SEP IRA with access to every product a taxable brokerage account would offer (except margin).

That said, while I appreciate full control and low cost, it is a lot of rope and I do wish the system was simpler and less perilous for those who want to just dump money into something reliable and take it out when they retire. Any control at all is perilous given the track record of average investors vs the performance of the funds they go in and out of.

> Canadian RRSP system

My understanding is that Canadian residents don't have the same number of low-cost index funds available to them as US residents. There's no Vanguard for individual investors, and no Schwab and Fidelity trying to compete with Vanguard's offerings.

Canadian brokers allow trading US stocks and bonds (on NASDAQ and NYSE) as well as Canadian ones (on TSX). I can buy American or Canadian Vanguard ETFs through a Canadian broker like Questrade. What I cannot do is use Vanguard as a broker, but that's a small inconvenience.

That doesn't invalidate the fact that Canadian savers have more options for what to do with their retirement savings. Largely because they're not beholden to their employers for getting a retirement savings plan in the first place.

I would think any employer paying you enough to realistically save more than $5500 would offer a 401k. That’s around 10% of the median household income, after all.

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