Retiring the 401(k): A New Framework for Retirement Savings

Americans attempting to save for retirement face a maze of account options, each with their own unique tax consequences. Unfortunately, this maze also limits access to tax-advantaged retirement savings and takes money out of savers’ pockets. In this article, we recommend entirely eliminating traditional and Roth 401(k) accounts after a date to be specified by Congress. To compensate for dollars that workers (and their employers, through matching contributions) formerly contributed to these accounts, we propose raising the current contribution limits to traditional and Roth Individual Retirement Accounts (“IRAs”) proportionately. We argue that this reform would solve numerous inefficiencies and inequities in the current 401(k) system — it would effectively expand lower- and middle-class workers’ access to tax-advantaged retirement savings. In Part II we discuss how our proposal would solve seven severe problems plaguing the 401(k); in Part III we explain the options for transitioning from the current regime to an all-IRA regime; in Part IV we address some preliminary objections to our proposal.