401kike
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However, what you've got framed here is wrong. If you roll over the IRA into another IRA then the beneficiary doesn't have to pay taxes on it. They only pay taxes if they withdraw from the IRA. Banks prefer if you keep the money invested because that's where banks earn the most profit. Thus all incentives with regards to taxes are there to induce you to keep as much money invested as possible.
If 401ks didn't exist then what would happen is that governments would simply tax your money when you earned it as income and if you proceeded to invest that money, you would pay more in the end because the government taxes income and taxes capital gains/dividends, so 401ks save you money presuming you wanted to save that money.
The real scam is in the fact that a lot of people's 401ks are locked-in in which they can't access the funds because the company contributes to it as part of "their share" when in reality, that money should always be at the disposal of the employee and it should never be locked-up.
Financial Institutions of course love the funds being locked-up because it gives them assurances they can invest that money and earn a management fee on it.
What governments should do is abolish personal income tax, capital gains tax, corporate tax and dividend tax. Then there's 0 need for 401ks. Of course governments won't do that so what they should do then is abolish capital gains/dividend taxes and then eliminate 401ks.
>they only pay if
How is that any different. Rolled over or withdrawn, both penalize the beneficiary and favor the banks, as stated.
If I earn $100 and it's taxed at 50% then my after tax earning is $50.
So without a 401k I have $50.
With a 401k I have $100 and then when I withdraw it I have $50. So it's exactly the same as income tax.
The advantage of a 401k comes from the fact there's no capital gains or dividend tax. So say I get $50 and then invest it in a stock and earn a 10% return. I have $55 but that $5 is taxed say at 25% do I have 53.75 now.
With a 401k I earn 10% on $100 so I have $110 then it's taxed at 50% when I withdraw do I have $55 now.
The 401k is better presuming I want to invest the money.