The tax treatment of 401(k) and other defined contribution plans is significantly more progressive than the federal income tax system. In fact, data show that 62% of tax incentives for DC plans go to households with adjusted gross incomes of less than $100,000 — underscoring the fact that 401(k) plans are the way middle class Americans save for retirement.
In higher–income households, the share of estimated federal DC plan tax expenditures for participants drops to about 27% for those in the $100,000-$200,000 AGI range and to about 12% for those with an AGI over $200,000. The share of federal income taxes paid (after figuring in tax credits), however, drops from about 25% for households with an AGI under $100,000, to about 13% for those in the $100,000-$200,000 range, before rising sharply to about 52% for those with an AGI over $200,000.
This information comes from an “infographic” (see below) produced by the American Society for Pension Professionals and Actuaries. Along with a wide range of other content — including videos, articles, and even an online video game — a series of ASPPA infographics like this one will be featured on SaveMy401k.com, a new website set to launch Nov. 12. The launch of the website will kick off a concerted effort by ASPPA and NAPA to protect the tax-deferred status of 401(k) plans as the debate over tax reform heats up on Capitol Hill.
Click here for a pdf file of this infographic.
