Incentives and Your 401(k)
The Jesse Mecham Show
YNAB
4.7 • 1.1K Ratings
🗓️ 20 January 2020
⏱️ 8 minutes
🧾️ Download transcript
Summary
Jesse reflects on a Senate bill -- now signed into law as the Setting Every Community Up for Retirement Enhancement (SECURE) Act -- which will require a greater amount of employers to offer 401(k) plans to employees. The new law also makes it easier for annuities to be included in 401(k) offerings by easing the fiduciary rules around fees and expense ratios.
401k) plans are excellent vehicles for saving for retirement because they allow employees to put away a lot of money every year -- up to $19,500 in 2020. Some employers offer matching on 401(k) contributions, further boosting savings rates.
However, the inclusion of more annuities in 401(k) plans has a darker motivation. Annuities typically charge higher fees than mutual funds and index funds -- sometimes a percentage point or more -- making them an inefficient and expensive way to save for retirement for most people. On the other hand, they are very profitable for insurance companies! Not surprisingly, insurance companies lobbied hard for the relaxation of fiduciary rules in the SECURE Act.
Just like Jesse discussed in last week's episode #411, wherever there are incentives, there are people making money. The wise investor follows the money!
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Transcript
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| 0:00.0 | Hello, Winebbers. My name is Jesse Meekham and this is podcast number 412 for |
| 0:08.8 | Wineb, where we teach you four rules to help you stop living paycheck to paycheck, |
| 0:12.2 | get out of debt and save more money. |
| 0:14.0 | Today I want to talk about incentives. |
| 0:16.0 | There was a bill that was passed that at First Blush, |
| 0:21.0 | I was excited about, and it involves your 401k. |
| 0:25.3 | It's expected to be signed by the president. |
| 0:28.0 | I'm talking about a bill in the United States |
| 0:29.8 | for you international listeners. |
| 0:31.8 | That would allow, among other other things your 401k to be |
| 0:36.7 | used to invest in annuities so you think oh that's interesting annuities are not |
| 0:41.9 | something that I or any well-respecting |
| 0:44.6 | financial advisor wholeheartedly recommends. |
| 0:48.1 | There are very narrow exceptions where certain |
| 0:52.0 | annuities are appropriate, that's generally for very high-income people |
| 0:58.6 | that are looking for some kind of tax-advantaged growth opportunity and they've maxed out the standards, right? |
| 1:04.8 | The Roths, the normal 401ks, IRAs, SEPS, things like that. |
| 1:10.6 | So I thought, oh, that's interesting. Annuities inside a 401k also it would allow for small |
| 1:16.4 | businesses that administering a 401k is a bit of a hassle you normally pay someone to do the administration for you |
| 1:25.1 | it's not terribly expensive but for a lot of really small businesses or |
| 1:29.2 | semi-small the idea of administration in a 401k is scary. |
| 1:35.4 | And so a lot of them don't do it. |
... |
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