The fundamental problem with 401ks is that they provide the only outlet for someone to save 25% of their income for retirement with tax deferral. So your choice is: use the company's 401k (no matter how expensive, how lame the investment choices, and how much the kickbacks) or lose that tax-deferred savings vehicle entirely. (A traditional IRA pales in comparison, with its $4000 limit, plus if you're married the maximum income ceiling is relatively low.)
This isn't a problem for me - as a self-employed contractor, I get a SEP-IRA. I get all the savings of a 401k (up to 25%) but I can put it anywhere I please, shopping the market place for an IRA that has investment choices I like and isn't gummed up with fees.
So my proposal is greedy - it solves our problems but doesn't help savers who aren't
paying attention. Simply put:
- The IRS should allow savers to treat all employment income as eligible for a SEP-IRA as long as the tax payer opts out of his or her company 401k.
- Matching benefits would be paid to the employee for direct deposit into the SEP-IRA.
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