Retirement Savings Challenge Gets Personal
May 23, 2023
I was reminded again this weekend — in a very personal way — how needlessly complex it is to save for retirement in this country. Our 18-year-old son, Ben, has a summer job in the Washington DC area. It’s an amazing opportunity. Like all jobs, even summer ones, there is a flurry of paperwork; much of it around taxes. He lives in California but will be working in Maryland for a few months so that will be fun to deal with next tax season. While I'm always up for a tax complexity rant, I want to focus on saving for retirement…
Ben was generously offered an opportunity to participate in the organization’s 403(b) plan. Better yet, the employer uses Vanguard. It gets even better for full-time employees: a second plan — the 401(a) — is also available. One organization. Two retirement plans that most Americans know nothing about.
To Roth or Not to Roth?
Not only do employees have to navigate two relatively obscure retirement plans, they also have to decide between Roth or tax deductible contributions. “Don’t I already have a Roth IRA?” my son asked. He does but this is different I explained. The second this answer came out of my mouth I was reminded how excessively complex we make saving for retirement. I went on to explain how Roth simply means after-tax. “Why not just call it after-tax?” he wisely asked. Well there was this senator from Delaware I explained. "Dumb. Dumb. Dumb," I thought. Not the senator of course, but our system.
There’s a Better Way
We almost got it right way back in 2003 when the Bush Administration proposed a much simpler system for workplace saving for retirement: one plan for all employees. You can read more about that ingenious idea here and listen to a podcast (see below) with one of the creators of this idea.
Ben’s Investing Decisions
Ben will be saving in a Roth 403(b). He chose a 2065 Target Date Fund. All good, right? Yes but soon I will have to have the conversation about the Rollover IRA when he invariably asks: “What happens to this plan when I am no longer working there?”
Stay wise and well (and advocate for savings simplicity)
Related Podcast:
Man with the (Better Retirement) Plan If only Congress had adopted a 2003 Bush Administration plan to drastically simplify saving for retirement. We interview William Sweetnam the Benefits Tax Counsel at the Treasury Department from 2001-2005. Listen Now »