I barely remember when IRA (Individual Retirement Accounts) came into being.   That came about during my first year of marriage (1974)- and, was the first chink in the armor destroying the American pension system that obtained.

The IRA provisions let those folks who worked for companies (typically smaller ones) that did not offer their staff pension plans to put away money (then $ 1500 a year) for their retirement.  These funds would grow – tax free- until one retired and began withdrawing those funds.  At which time, taxes would be paid on the withdrawals  (unless one withdrew the funds before retirement [age 59.5], which would require a 10% penalty to be also paid for those early withdrawals).

But, it was just a few years later, in 1978, when yet another provision was created- the 401(k) plan.  That really was the death knell for pension plans across America.

Our firm adopted the 401(k) plan (along with the profit sharing component) that year.  And, while the world was told that this program- like the IRA- would have little affected on tax collections, we now know that is pure malarkey.  These plans cost the Treasury about $ 200 billion a year.

Nowadays, folks can sock away some $ 6K a year ($ 7K, if one is 50 or older), plus employer contributions (and profit sharing) that can up that total over $ 60K a year.

But, here’s the real truth.  More than ½ the taxpayers (58%) don’t put a penny into 401(k) plans- while about 4% manage to max out on the plans.   (At the same time, about 63% of us don’t have an IRA account.)

Which is why our policy has been to contribute funds for every one of our employees.  Those at the very bottom end of the pay scale received a 3% contribution- and we matched contributions for those who were in the bottom 80% of the pay scale up to 5%.

(To be honest, if I hadn’t raided my contributions to fund my divorce- and obtain custody of my kids, I’d have some $5 million under management. But, that’s nothing compared to what folks like Peter Thiel and Mitt Romney have agglomerated- because they placed their early stage stock into the programs, which is one of the legal wrinkles that lets folks sneak in larger contributions that were envisioned under the law.)

The folks that made the most off these policies have been the financial managers. (There are some $ 22 trillion under management by such firms.)  Because the bigger these funds grow, the more the fees that they can glom off the programs   And, they’ve been “thanking’ (i.e, bribing) our elected officials with hefty financial contributions to their reelection campaigns. As a matter of fact, BlackRock, Vanguard, Fidelity, and State Street dumped some $ 1.2 million to political action campaign committees just during the last election (and that was but a sliver of the funds these firms accumulated from the retirement programs).

And, Congress has been tweaking the programs.  Supposedly to help us accumulate funds in our retirements, but in reality, these tweaks have been draining the Treasury.  Consider the most recent change- altering the age at which withdrawals must begin. Instead of 70.5, the threshold is now 72 y of age- and soon to be 75.  Sure, that lets one accumulate even more funds tax free before retirement, but most lower income retirees cannot conceive of not drawing out their funds when they hit the magic age of 65 (or even 60).    They need those retirement funds to cover their living expenses, when their salaries cease.

Another tweak was the “Saver’s Credit”.  This is a tax rebate provided for your contributions to retirement funds that can be as much as 50% of your contribution (the other levels are 10% and 20%), that is a function of your gross income.  The maximum credit is $1000 ($2000 if married filing jointly)- but…

Let’s get real.  For us to get the maximum saver’s credit, we need to contribute something on the order of 10% of our gross pay.  If we were making $ 19700- even with no federal or state income tax withheld, our net pay would be under $ 18K- and with $ 2K put into retirement, that would mean we’d have less that $16K upon which to live.

And, it gets better (read worse).  At that compensation, we wouldn’t owe a penny in income tax- which means the credit is useless since it is only granted against taxes owed!

That’s what I mean by stacking the retirement deductions in favor of the rich.

Nevertheless, I advocate we all put away as much as we can for retirement- because we are not going to be living high off the hog on what social security provides us when we retire.

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