401(k) Plans Can Increase Taxes for Some
Investor's Business Daily (09/06/01) Vol. 104, No. 37 p.B1; Katzeff, Paul

A report by the Federal Reserve Bank of Cleveland suggests that 401(k) plans can translate into higher taxes for low- and moderate- income participants. In the study, researchers at the Cleveland Fed and a Boston University economist hypothesize that a couple who earned $50,000 at age 25 end up paying more taxes than if they had never joined a 401(k) plan, and have less money to spend. But critics argue that the hypothesis is flawed because it presumes that the couple's yearly wages grew 1 percent faster than inflation until age 64. What is more, critics like Ed Ferrigno with the Profit Sharing/401(k) Council of America, complain that the study's negative findings rely primarily on key assumptions that do not apply to every individual. "If you accept all of its assumptions, I can't contest its arithmetic," Ferrigno said. "But in the real world most people, especially lower-income workers, are far better off joining a plan."

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