Aaron Brown, Columnist

Biden Plan to Improve the 401(k) Does the Opposite

Once again, younger median-wage workers would be penalized for investing.

September 7, 2020 at 11:00 AM UTC

Aaron Brown is a former head of financial market research at AQR Capital Management. He is also an active crypto investor, and has venture capital investments and advisory ties with crypto firms. He is the author of the soon-to-be-released "Wrong Number."

We need to help employees better save for retirement.
Photographer: Bloomberg

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I’ve written a couple of recent columns found here and here on fixes needed to restore the value of 401(k) and other deferred tax retirement plans for young median-wage workers. The presidential campaign of Joe Biden and Kamala Harris has a proposal aimed at that issue. It’s a step almost exactly in the wrong direction.

Under current policy, standard deferred tax retirement plans, including 401(k)s, IRAs and other variants, are taxed at distribution time rather than contribution time.1 Biden-Harris propose to tax the plans at both contribution and distribution, and to offer a refundable tax credit to make up for the double taxation. The idea is justified on the basis of fairness, since avoiding tax at contribution time is worth only 12% to most middle-income workers, but 37% for the highest-income workers.