Comments on: How About an Automatic IRA?

By: ira » How About an Automatic IRA?

ira » How About an Automatic IRA? — Mon, 05 Nov 2007 15:28:11 +0000

[...] Read the rest of this great post here [...]

By: Blogging About ERISA - Carnival #19

Blogging About ERISA - Carnival #19 — Mon, 05 Nov 2007 01:13:44 +0000

[...] JLP of the All Financial Matters blog discusses Laura Tyson’s article in the Wall Street Journal on automatic IRAs in How About an Automatic IRA? [...]

By: Thinking About Retirement - A Stroll Through My Blogroll

Thinking About Retirement - A Stroll Through My Blogroll — Wed, 31 Oct 2007 05:01:19 +0000

[...] AllFinancialMatters has an interesting article about Automatic IRAs – I like the idea of making investing easier – but if companies move to this plan, would 401K matching be a thing of the past? I’ll have to do some further research. [...]

By: Kitty

Kitty — Tue, 30 Oct 2007 23:39:06 +0000

“There doesn’t appear to be any mechanism by which a participant’s tax withholding is adjusted relative to their IRA contribution. ”
You can fill out W-4 to adjust your withholding levels. Yes, the employees would have to figure it out on their own, but it is not that complicated.

By: Joel

Joel — Tue, 30 Oct 2007 20:03:41 +0000

A few problems I have:

It’s forced on businesses- there’s no choice involved. Yes, there’s a one-time upfront tax credit to defray the cost of setting up the plan, but this will be another ongoing paperwork burden for employers.

Unless the employee opts out, they are automatically enrolled. I don’t like it when people’s decisions are made for them by someone else (particularly the government!).

There doesn’t appear to be any mechanism by which a participant’s tax withholding is adjusted relative to their IRA contribution. That means more people have to wait until tax time to get more of their own money back from Uncle Sam.

By: Brad

Brad — Tue, 30 Oct 2007 18:50:52 +0000

I’m not familiar with the Automatic IRA, but there is an alternative to 401K’s for small businesses who can’t afford the costs of administering 401K’s. It is called a SIMPLE IRA. We have one where I work.

It works very similarly to a 401k from the employee’s perspective. The employer has limited flexibility (i.e. how much matching they can offer, etc.) in return for lower administrative costs.

By: Money Blue Book

Money Blue Book — Tue, 30 Oct 2007 18:41:02 +0000

I think such discussions are moves in the right direction. People aren’t taking advantage of IRAs and Roths enough so maybe a payroll deducted deferred retirement plan is the way to go for those without access to employee plans.
-Raymond

By: Spokane Al

Spokane Al — Tue, 30 Oct 2007 18:31:49 +0000

I wonder if this idea will allow the employee to choose between a Roth and a regular IRA. For many of us forgoing the immediate tax break and taking advantage of a lifetime of tax free earnings combined with tax free distributions makes more sense than an IRA.

Of course even a standard IRA is better than nothing at all.

By: BuildAndSucceed

BuildAndSucceed — Tue, 30 Oct 2007 18:21:13 +0000

If it helps people who aren’t saving start saving, it’s definitely a good thing.

By: Foobarista

Foobarista — Tue, 30 Oct 2007 17:57:11 +0000

How about allowing self-managed 401Ks as a substitute for employer 401Ks? The thing I don’t like about an “automatic IRA” is that it would be subject to far lower contribution limits.

A self-managed 401K would be an account you manage, with employer contributions in a parallel “escrow” account until they “vest”, in terms that are part of your employment contract.

We already have self-managed 401Ks for self-employed people; making them portable for regular employees would be a huge step forward.