{"id":288,"date":"2021-05-28T13:15:00","date_gmt":"2021-05-28T13:15:00","guid":{"rendered":"https:\/\/www.401keasy.com\/blog\/?p=288"},"modified":"2025-06-12T13:16:58","modified_gmt":"2025-06-12T13:16:58","slug":"biden-401k-explained-in-180-seconds","status":"publish","type":"post","link":"https:\/\/www.401keasy.com\/blog\/biden-401k-explained-in-180-seconds\/","title":{"rendered":"biden-401k-explained-in-180-seconds"},"content":{"rendered":"\n

A 2 minute video on what Biden 401(k) is<\/strong><\/h2>\n\n\n\n

The goal of the proposed Biden 401<\/strong>(k) is to \u201cpush down\u201d the tax benefits of 401(k) participation to 80% of American workers who earn less than $175,000 in W-2 wages. Currently, these workers are receiving only 35% of the tax benefits of all 401(k) participants, and workers earning more than $175,000 are getting 65% of 401(k) tax benefits. The objective of the Biden 401(k) is to equalize 401(k) tax benefits across all income groups.<\/p>\n\n\n\n

Suppose your W-2 adjusted gross income (AGI) exceeds $175,000 per year. You are in the upper 20% of all wage-earners. Under the Biden 401(k), you will see a reduction in the tax-deferral benefits of your 401(k) contributions compared to previous years. On the other hand, if you earn less than $175,000, you will see a gradual increase in tax-deferral benefits compared to last year.<\/p>\n\n\n\n

Why?<\/strong><\/p>\n\n\n\n

The reason is that the 401(k) payroll contributions you make are made with pre-tax<\/em><\/strong> dollars. The pre-tax contributions create a year-end tax deduction that reduces your taxable income. This 401(k) tax benefit is currently skewed toward higher-income families because their income tax bracket is higher, so their year-end deduction is higher.<\/p>\n\n\n\n

President Biden Is proposing a way to \u201cequalize\u201d these 401(k) tax benefits across all income groups. The idea is to give lower- and middle-income workers a tax credit<\/strong> of 26% of their annual 40k contribution. For example, suppose you are a middle-class wage earner and contribute $8,000 to your 401(k) In that case, you will be entitled to a tax credit<\/strong> (not a tax deduction, but a credit!<\/strong>) of $8,000 X .26 = $ 2,080 credit. Any knowledgeable tax adviser will confirm that taxcredits are far more valuable to you than tax deductions, which is what you get now with a 401(k).<\/p>\n\n\n\n

As an aside, It is anticipated that a Biden 401(k)<\/a> would result in more high-income wage earners gravitating to Roth 401(k) accounts. Roth 401(k)  contributions are made with after-tax dollars, but like the traditional 401(k), investments grow tax-deferred until used at retirement.<\/p>\n","protected":false},"excerpt":{"rendered":"

A 2 minute video on what Biden 401(k) is The goal of the proposed Biden 401(k) is to \u201cpush down\u201d the tax benefits of 401(k) participation to 80% of American workers who earn less than $175,000 in W-2 wages. Currently, these workers are receiving only 35% of the tax benefits of all 401(k) participants, and…<\/p>\n","protected":false},"author":1,"featured_media":289,"comment_status":"closed","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-288","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.401keasy.com\/blog\/wp-json\/wp\/v2\/posts\/288","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.401keasy.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.401keasy.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.401keasy.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.401keasy.com\/blog\/wp-json\/wp\/v2\/comments?post=288"}],"version-history":[{"count":1,"href":"https:\/\/www.401keasy.com\/blog\/wp-json\/wp\/v2\/posts\/288\/revisions"}],"predecessor-version":[{"id":290,"href":"https:\/\/www.401keasy.com\/blog\/wp-json\/wp\/v2\/posts\/288\/revisions\/290"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.401keasy.com\/blog\/wp-json\/wp\/v2\/media\/289"}],"wp:attachment":[{"href":"https:\/\/www.401keasy.com\/blog\/wp-json\/wp\/v2\/media?parent=288"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.401keasy.com\/blog\/wp-json\/wp\/v2\/categories?post=288"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.401keasy.com\/blog\/wp-json\/wp\/v2\/tags?post=288"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}