I mentioned this in a recent HD comment, but I think it deserves more discussion.
It’s time to scrap all tax-advantaged defined contribution retirement plans and replace them with one plan, one set of rules, uniform limits. No IRAs of any kind, no 403b, no 401k, no nothing else.
Just a Universal Retirement Plan- Individual or employer sponsored. All contributions on an after-tax basis and tax and distribution rules following the Roth model. Everyone could contribute up to one (generous) limit.
Higher income earners don’t need the pre-tax contributions and they mean little to middle and lower income earners who have an effective tax rate of 3.7%.
Most important is an employer match which too would remain tax-free just as employer contributions toward health insurance are tax-free to workers.
The plan would provide tax-free income in retirement along with the greater withdrawal flexibility Roth currently provides. All retirement distributions would count as income for IRMAA premiums – income is income after all.
The only issue I can see is while there would be a federal revenue gain in the near term, there might be a greater revenue loss in the long term as tax-free earnings exceed contributions. On the other hand, more taxable income in the short term lowers deficits and government interest payments long term – or should.
So, does simplicity and uniformity make sense? Would more retirement saving be encouraged and retirement income enhanced?
So I am contributing money I’ve already been taxed on…then being taxed on it again when I take it out? No tax-free treatment on contributions? I dunno…double taxation seems a bit unfair. Simple or not.
Just like a Roth you would not be taxed on after tax contributions or earnings.
You want to do away with IRA’s but would non-working spouses still be able to contribute to your Universal Retirement Plan? Due to an auto immune disease, I retired at 58. But, I am happy that I have been able to fund my IRA each year while my husband still has earned income.
No reason to change that. The main goal is one plan, one set of rules and limits, to encourage saving for retirement.