Now, a Tax-Free Roth 401(k)?

  • Share
  • Read Later
How do you get a nation of non-savers to put away enough for retirement and take the load off Social Security? Senator William Roth (R-Del.), chairman of the Senate Finance Committee, believes he knows a good idea when he sees one: his own. Roth is proposing to take his popular Roth IRA idea and graft it onto employee 401(k) plans. The central feature of the proposal would be to make the earnings on contributions in 401(k) plans tax-free when they are distributed at retirement, much like the Roth IRA. "Obviously, any attempt to increase savings would be helpful to both savers and the economy," says Bernard Baumohl, TIME senior economics reporter.

So far, the nation's savings rate remains abysmal. "For two months back to back last year, the savings rate was less than zero," says Baumohl. "That's the first time since the Depression that there have been two consecutive months of negative savings." With the bulging Baby Boom generation edging toward retirement and Social Security coffers looking barer and barer, politicians are scrambling to come up with any proposal that will prompt people to take the financial responsibilities of retirement into their own hands. The Roth proposal may help some, but since the plan obviously benefits those who have money to begin with, it still leaves out in the cold those who can't afford to save. Dealing with that portion of the population remains the $64 question that everyone promises to answer -- later.