The pandemic has drawn attention to an issue that has been proposed from time to time for years: how employers can better encourage employees to save.
Some states, like New York, have focused on automatic IRAs and setting up rules that would require employers to automatically divert a portion of employee pay into an IRA unless the employee specifically opts out.
Other proposals would focus on creating a new type of tax-preferred universal emergency savings account (ESA) to help employees save. Unlike retirement accounts, the ESA would not be subject to the typical penalties that apply to an employee’s ability to take withdrawals from a retirement savings account. Variations on the theme have been proposed. Some would create Roth-style tax treatment, while others would allow pretax employee contributions.
We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about which type of account is more valuable, given a choice between the two savings options.
Below is a summary of the debate that ensued between the two professors.
Bloink: Ideally, every American would have sufficient income to fund both an emergency savings account and retirement savings accounts. However, given a choice between the two, these universal emergency savings accounts would do little more than encourage wealthy taxpayers to shift savings from taxable accounts into these tax-preferred vehicles in order to escape paying taxes on the account’s earnings over time. The middle class would be much better served by an auto-IRA model geared toward protecting their financial security during retirement.