Outside-the-box Ideas for continued improvements to 401k plans
Bradley Bartells, CPA
Your “Go-To Guy” for retirement plan and nonprofit financial statement audit expertise!
SECURE and SECURE 2.0 did some amazing things to enhance and improve 401k plans.? It will be years before we are able to truly understand and evaluate the impact of the various provisions on retirement accounts, but on the surface, all of these provisions are welcome improvements to 401k plans.?
But…I don’t want to stop with the provisions from the SECURE Acts!? I have come up with a few proposals to continue to improve the benefits participants will receive from their 401k accounts…?
The cost of college education continues to increase.? A benefit that could be added to 401k plans is to allow loans from participants 401k accounts to pay qualified education expenses for immediate family members (direct dependents of the participant of the 401k plan).? Loans would be limited to a 5 year maximum loan term.? These loans will be allowable for college or trade school tuition and related expenses.?
For participants who live in a Federally declared disaster area and needed to withdraw from their 401k account for immediate living expenses, allow those participants to make future 401k contributions in excess of the standard contribution limits in order to make up for those withdrawals.? This would allow participants to build back their retirement savings sooner.?
Excessive fee lawsuits have gotten out of hand.? In order to discourage excessive fee lawsuits, if a participant is a party to an excessive fee lawsuit, that participant forfeits rights to any employer company contributions to the plan for the next 5 years.?
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It is never too early to begin saving for retirement.? In order to begin retirement savings for children of employees, allow employees to make salary deferrals in excess of the standard contribution limits, however contributions in excess of the standard contribution limits must be contributed to a separate retirement account set up for the benefit of a dependent child of the employee.? Annual maximum contribution of $5,000.? These contributions would not be eligible for any safe harbor match, other employer match or profit sharing, and would not count against any annual compliance testing.?
To encourage donations and contributions to charitable organizations, allow employees to make salary deferrals in excess of standard contribution limits, however contributions in excess of the standard contribution limits must be contributed directly to a qualified 501(c)(3) nonprofit organization.? Annual maximum contribution of $1,000.? These contributions would not be eligible for any safe harbor match, other employer match or profit sharing, and would not count against any annual compliance testing.?
The SECURE provision allowing companies to make matching contributions on student debt loan payments is a great step in the right direction.? Now, let’s expand that idea to allow companies to make matching contributions to an employee 401k account for employees who are making contributions to a health savings account.?
Since plan fees are a hot topic, how about allowing each participant in a plan to choose from a menu of services and fee options?? Each plan could have a base fee structure, then allow participants the option of paying additional fees to add optional features and services to their own 401k account.? This would allow plan provides to be very creative and provide unique service options to the plans they serve.?
These ideas may be outside-the-box…but are they?? I would love to hear your thoughts and ideas.
Simplifying retirement planning | Founder & CEO @ 2PiFinancial | ex-Wall Street | Finance Nerd
1 年Bradley offers some interesting ideas and I appreciate his outside-the-box suggestions. In particular, attacking the high costs of college is a worthy goal. It used to be that someone with a high school diploma was considered an educated person. Not any more. But I am not sure that the 401(k) is the place to address it. Perhaps expanding access to the existing tax advantaged vehicles for financing higher education is a better alternative. Reducing frivolous lawsuits is another worthy goal. But it’s complicated. Worrying about large settlements keeps would-be defendants in line. I think encouraging discussion of changes, their costs and benefits and unintended consequences is exactly what Bradley is trying to do. Nice job.
Retirement Plan Advisor at First Pacific Financial
1 年Allow Roth IRA's to be rolled into company retirement plans that include Roth provisions.
Grist Top 50 Climate Leader 2024 ?? Nerding out on Climate Solutions ?? 401(k)/403(b) investing
1 年If I were to make one change, it'd be to blend the tax advantages of a Roth and Traditional account, to make a pre-tax contribution that can be withdrawn tax free after 59.5. We are in a retirement crisis, and this would increase incentives and simplify the process. I don't think enough is talked about how it needs to be simplified.