What Does Biden’s Win Mean for Your Retirement Plan?

Mandatory Credit: Photo by Carolyn Kaster/AP/Shutterstock (11009100p)President-elect Joe Biden speaks, at The Queen theater in Wilmington, DelBiden, Wilmington, United States - 09 Nov 2020.
©Carolyn Kaster/AP/Shutterstock

Once he takes over as president in January, Joe Biden will begin rolling out a number of measures that will impact retirement. “Current tax benefits for retirement savings provide upper-income families with a significant tax break, while providing a limited benefit for low- and middle-income workers,” Biden’s campaign website reads. “Biden will equalize benefits across the income scale, so working families also receive substantial tax benefits when they put money away for retirement.”

Most individual contributions to employer-sponsored retirement plans such as 401(k) plans are made with pretax dollars, thus reducing one’s taxable income — but the tax savings value here depends on the worker’s marginal tax bracket. Under the current system, a taxpayer in the highest-earning bracket would see their federal tax bill reduced by 37% of however much they put into their retirement fund that year. A taxpayer in the lowest bracket of 10% would see a 10% reduction. The more you make the more you’re able to save not just because you make more money, but because you can save a greater percentage of whatever you’re able to put into retirement. This isn’t a new system, but it’s one that has drawn extensive criticism over time and hasn’t helped solve the retirement crisis in the U.S.  

How Biden will equalize the tax benefits for retirement is not yet crystal clear, and like with every other major policy change on the table, so much depends on whether the Democrats gain control of the Senate. Equalizing retirement tax benefits could mean that the person making $40,000 a year would be credited 37% of their retirement contribution — just like the person making $400,000 a year — or it could mean the credits go down for everybody. We’ll have to wait and see not only what Biden plans to do in terms of specifics, but which party gains control of the Senate. Biden would likely find himself gridlocked on this matter and many others if the Senate doesn’t go blue.

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About the Author

Nicole Spector is a writer, editor, and author based in Los Angeles by way of Brooklyn. Her work has appeared in Vogue, the Atlantic, Vice, and The New Yorker. She’s a frequent contributor to NBC News and Publishers Weekly. Her 2013 debut novel, “Fifty Shades of Dorian Gray” received laudatory blurbs from the likes of Fred Armisen and Ken Kalfus, and was published in the US, UK, France, and Russia — though nobody knows whatever happened with the Russian edition! She has an affinity for Twitter.