Make us your home page
Instagram

Today’s top headlines delivered to you daily.

(View our Privacy Policy)

Q&A: Xxxxxxxxx hed here

Q&A: Get the inside scoop on the 401(k)

The inside scoop on the 401(k)

Since there have been many dire predictions about the availability of adequate retirement benefits through Social Security in the coming decades, combined with the near obliteration of pension plans, why are there significant caps on what employees can contribute to 401(k) plans and IRAs? I don't think the maximum contribution has been increased for the last three years.

Maximum contribution to a 401(k) for folks under 50 is $16,500 a year. That increases to $22,000 per year after age 50, but it is commonly known that most people are unable to begin making serious effort toward saving for retirement until after they reach their 50s when their kids are grown. If a person doesn't start making serious contributions until then, even saving the maximum amount is not going to be enough to fully support someone for the remainder of their life after retirement, particularly as life expectancies continue to increase.

The law allowing taxpayers a break by deferring income was established in the IRS code in 1978. Two years later a benefits consultant named Tom Benna used that break to create a simple way to save for retirement. It was the 401(k).

The federal government walks a tight line with retirement accounts such as a 401(k). It wants to encourage people to save for retirement, but it also needs to make sure it doesn't go too far and cut into its yearly cash flow from income tax revenue. Because contributions are tax-deferred, raising the cap on contributions would act to lower tax revenues.

For other answers to your questions we consulted Bo Bohanan, director of retirement plan consulting for Raymond James of St. Petersburg.

He said caps are adjusted annually for cost-of-living adjustments but generally are changed only in $500 increments. The contribution cap for 401(k) plans has changed over the years, but not necessarily every year. In 2008 it was $15,500. That was bumped to $16,500 for 2009 and remained there until this year, when it was raised to $17,000.

Those over age 50 can add $5,500 in "catch-up" contributions, a number that is also tied to inflation, Bohanan said.

Interestingly, Benna, known as the "father" of the 401(k), is no fan of the current iteration of his creation.

Benna told msn.com a year ago that the plans got too complex as they got more popular. "Now this monster is out of control. We went to three options, then to six, then to seven, then to 15. It is far beyond what most participants were able to deal with," Benna told msn.com. "And I am not convinced we have added value by getting more complicated."

He has urged Congress to overhaul the system.

Q&A: Xxxxxxxxx hed here

Q&A: Get the inside scoop on the 401(k) 10/15/12 [Last modified: Monday, October 15, 2012 6:08pm]
Photo reprints | Article reprints

© 2017 Tampa Bay Times

    

Join the discussion: Click to view comments, add yours

Loading...
  1. Former Hillsborough school official files lawsuit alleging high-level corruption

    K12

    TAMPA — The fired human resources chief of the Hillsborough County School District is accusing district leaders and two School Board members of committing corrupt acts and then punishing her when she would not go along.

    Stephanie Woodford rose through the ranks of the Hillsborough County School District, then was fired as Chief of Human Resources on April 28. She's now suing the district, alleging numerous acts of corruption. [EDMUND D. FOUNTAIN | Times]
  2. District 6 Council candidate Justin Bean crisscrosses St. Petersburg

    Blogs

    ST. PETERSBURG – City Council District 6 candidate Justin Bean spent Thursday crisscrossing the city by bus, electric car and bike as part of a campaign to get his message out.
    His final stop was City Hall, where he spoke on the steps of the historic municipal building about what he referred to as the …

  3. Accident or murder? Jury soon to decide fate of Deandre Gilmore

    Crime

    TAMPA — Deandre Gilmore has never disputed that it was a mistake to leave his girlfriend's 19-month-old daughter unattended in a bathtub on May 7, 2014.

    Tampa police Officer James Parsons testifies as a photograph of 19-month-old Myla Presley is displayed Tuesday at Deandre Gilmore's murder trial. The photo was taken before the girl's death. .[CHRIS URSO   |   Times]
  4. Deputies: Dunedin man had an arsenal and images of schools

    Public Safety

    Deputies executing a search on a Dunedin home on Wednesday expected to find signs that a 24-year-old resident was in possession of child pornography.

    Pinellas deputies say Randall Drake, 24, left, had an arsenal of weapons and images of schools.
  5. Clearwater Police investigating Mexican girl's injury at Scientology headquarters

    Special Topics

    CLEARWATER — The Clearwater Police Department is investigating an incident in which a 17-year-old girl from Mexico suffered a head injury Sunday at the Church of Scientology's international spiritual headquarters.

    A 17-year-old girl is at Johns Hopkins All Childrens Hospital after being injured at the Church of Scientology's international spiritual headquartersin Clearwater. JAMES BORCHUCK   |   Times