Richard Thaler likes a contrarian view; it’s probably what won him this year’s Nobel Prize.
The University of Chicago academic weighed in with a surprising take last week on the industry uproar over the potential for 401k contribution limit cuts.
Taking to Twitter on Wednesday, Thaler wrote:
“Unpopular observation: reducing the limit on 401k contributions is massively progressive.”
Noting the predictable outrage that followed, the behavioral economist followed up a day later with:
“I knew this would be unpopular. The tax shelter helps the rich two ways: they save more and get a bigger tax subsidy. Very few max out.”
Thaler has been widely praised for his work specifically related to 401ks and retirement savings, with many crediting him as a driving force behind auto-enrollment and auto-escalation now prevalent in plan design.
As a strong advocate for “making it easy” for participants, many were surprised by his view.
It all started when The Hill reported recently that “the potential change that people following the tax bill are hearing about would lower the maximum annual contribution to $2,400. Amounts over $2,400 could be put into Roth 401(k)s, where the money is taxed upfront but not when it’s withdrawn.”
One day earlier, the Internal Revenue Service announced contribution limits for employees who participate in 401k, 403b, most 457 plans, as well as the federal government’s Thrift Savings Plan, will increase from it’s current $18,000 to $18,500 in 2018, barring any cuts as part of a potential tax reform deal.
“It’s unclear how seriously lawmakers are considering reducing the cap on pre-tax contributions to 401(ks),” The Hill added. “But industry groups are worried that dramatically lowering the cap on pre-tax contributions would reduce the amount that people save for their retirement.”
About 55 million Americans participate in 401k plans, which now hold more than $5 trillion in assets, according to the Investment Company Institute.
Investors with 401ks and similar defined contribution (DC) plan accounts value the control and choice of investment options offered in their plans, ICI notes.