There’s A Big Problem With The 401(k) Plan

If you’re a young worker, maybe you can relate [View in browser]( [The Juice Logo] BROUGHT TO YOU BY: [Logo]( Proprietary Data Insights Top Dividend-Paying Stock Searches This Month Rank Ticker Name Searches #1 [NVDA]( Nvidia 707,093 #2 [AAPL]( Apple 323,837 #3 [MSFT]( Microsoft 194,852 #4 [META]( Meta Platforms 117,919 #5 [INTC]( Intel 105,195 #ad [Dive into Expert Picks - We Spill the Best Daily!]( Brought to you by [Weiss Ratings]( [On June 10, Nvidia makes its next big move]( [ Weiss Ratings - On June 10, Nvidia makes its next big move]( Nvidia continues to steamroll every stop sign in its path … Every time the mass media, or some “expert” says it can’t go any higher, Nvidia’s stock just explodes through the latest ceiling placed on it. In fact, Nvidia is now up 710% since the current AI boom began … And it’s soared 25-fold in the past five years. Thanks to its powerful artificial intelligence chips, and shrewd business decisions by the company’s leadership, Nvidia continues to rise. That’s why, on its most recent earnings call, Nvidia made a big announcement. After showing record quarterly revenues yet again … This time to the tune of $26 billion. Nvidia announced a 10-for-1 forward stock split that is set to begin on June 10. [Click here to find out more.]( There’s A Big Problem With The 401(k) Plan At the beginning of the year — believe it or not, nearly six months ago now — we did an installment of The Juice with a similar title. We [discussed some problems we have]( with retirement plans, such as 401(k)s and IRAs. Now, of course, retirement investing in tax-advantageous accounts works out for millions of people. However, as is often the case in personal finance and investing, something that works out for lots of people can become one-size-fits-all dogma. And, sometimes, it gets to the point where you’re branded as insane for not taking the blanket advice. Show us a money article about how to invest that doesn’t start with “max out” your 401(k) and/or IRA contributions. Great advice. Until it isn’t. One of The Juice’s general concerns is that if you have to stretch to do something financially, it probably isn’t a great idea. Whether that’s buying a house or saving for retirement, what’s the point of crunching your budget to the point where you have to backtrack? If you have to turn to credit cards to make ends meet? If, as we outlined in that aforementioned Juice, you have to take a hardship or otherwise early withdrawal from a retirement plan to cover expenses. Some people are simply better off in taxable accounts where they get their hands on their money with no or relatively fewer tax consequences. We don’t talk about these people enough. As we also noted in that previous Juice: The news isn’t all bad. BofA also noted that 21.3% of Generation Z and 10.4% of millennials have increased their 401(k) contribution rates. Less than 3% have decreased the money they’re taking out of their paychecks. But, as we considered when we wrote that, we wondered if that’s yet another facet of our haves and have nots economy. It seems intuitive that retirement plans, particularly 401(k)s, benefit people with jobs (obviously!) and really benefit high earners. Because, without doubt, there are people who don’t contribute at all or don’t make out their contributions because they can’t afford it. They need cash flow to cover the cost of doing life. Vanguard recently released an assessment of 401(k) plans with a focus on the employer match. Among the findings, directly from the Vanguard report: - In two-thirds of plans, employer contributions exacerbate pay inequity. - Employer contributions are highly concentrated, with 44% of dollars accruing to the top 20% of earners. Many common formulas, including safe harbor designs, disproportionately benefit higher-income employees. - The majority (59%) of employer contributions accrue to the 41% of employees who save more than the match cap, suggesting they would have saved just as much without the match. - The bottom 20% (of earners) receives just 6% (of employer contributions). As with many things in America, benefits are tied to employment. Most notable, health insurance. However, how much you earn also matters. Vanguard proposes some ideas to deal with the inequities: … we find that a dollar cap on matching contributions correlates with greater equity and lower costs. Employers could prioritize plan features that promote savings for lower-income workers, such as autoenrollment, a higher default savings rate, or immediate eligibility and vesting. Dollar caps are a promising (and currently underused) tool that could free up employer resources to pay for such features. Vanguard profits from the 401(k) business. So, good on it for highlighting the inequity. At the same time, Vanguard has a vested interest in proposing solutions to the current system. To be clear, we’re not saying there necessarily needs to be a policy change. The Juice doesn’t think we’re going to see this reality change. People who earn more money can save more money and, subsequently, stand to benefit from perks such as employer matches. What we are saying is that the one-size-fits-all narrative needs to change. We have created an investment culture that makes it seem as if you’re failing if you don’t max out retirement plan contributions you have available to you. And the reality is that this isn’t the only way to build wealth and save for retirement. If a taxable strategy or something that doesn’t involve 401(k)s (and IRAs) works for you, go for it. If you lose sleep because too much of your paycheck is going into your 401(k) because you’re essentially being shamed into contributing to it, that’s not good. Plenty of worthwhile options exist to help you better balance your current needs alongside your financial future. [Beyond Traditional Investments: Embrace Diversity]( Don't limit your investment horizons to stocks alone. Venture into the realm of AI, Real Estate, Private Equity, NFTs, and more! Our financial experts curate a diverse range of alternative investment content. [Sign up for FREE and broaden your investment knowledge with The Alt.]( The Bottom Line: Yes, we absolutely do have a ton of options. More than ever. So, next week in The Juice, we’ll focus on them. We’ll start the week looking at alternative investments, such as private equity and the platforms you can use to enter the broad space. We’ll finish it with a comparison between investing in taxable versus tax-deferred or otherwise tax-advantageous accounts that goes beyond the A+B math and takes real life into account. So, if you haven’t already, please forward today’s Juice to a friend and suggest they [subscribe for free](. [-facebook-share]( [-twitter-share]( [-linkedin-share]( [-email-share](mailto:?body= https%3A%2F%2Finvestingchannel.com%2F%3Fp%3D618187?utm_medium=ic-nl&utm_source=119597 ) News & Insights Freshly Squeezed - [‘Not Everybody Hates High Interest Rates’]( - [Everything You Need To Know About The Housing Crisis Right Now]( - [10 Best Dividend Stocks Yielding at Least 7% According to Hedge Funds]( - [Is This Growth Stock a Buy After Its Q1 Beat and Raise?]( [News & Insights-facebook-share]( [News & Insights-twitter-share]( [News & Insights-linkedin-share]( [News & Insights-email-share](mailto:?body= https%3A%2F%2Finvestingchannel.com%2F%3Fp%3D618187?utm_medium=ic-nl&utm_source=119597 ) [We want to hear from you. Let us know your thoughts by clicking here]( [Pixel] [InvestingChannel Logo](#) Follow us on: [Facebook Logo]( [LinkedIn Logo]( [Twitter Logo]( [Instagram Logo]( To ensure delivery of all emails, [allow us on your list](. Manage your subscriptions with our [preference center](. [Unsubscribe here.]( View our privacy policy [here](. Copyright ©2024 InvestingChannel. All rights reserved. 1325 Avenue of the Americas, Floor 27 & 28 New York, New York 10019 Disclaimer: This is not investment advice. This InvestingChannel, Inc., newsletter is for information purposes only and is based on opinion. Futures, forex, stock, and options trading are not appropriate for all investors. There is a substantial risk of loss associated with trading these markets. Losses can and will occur. No system or methodology has ever been developed that can ensure returns or eliminate losses. InvestingChannel, Inc., makes no representation or implication that using any of the methodologies or systems in this newsletter will generate returns or insure against losses. Investors should be cautious about any and all investments and are advised to conduct their own due diligence prior to making any investment decisions. [Link](