June 2015

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Workers See Regular, Roth 401ks as Same

Due to differing tax treatments, each $1,000 placed into a traditional, tax-deductible 401(k) costs less today than $1,000 placed into a Roth 401(k), but that Roth will provide more money in retirement.

New research indicates that workers don’t recognize this difference between the two types of employer-sponsored retirement accounts when deciding how much to save.

A $1,000 contribution to a traditional 401(k) costs the worker less than $1,000 in take-home pay, because the income tax hit on the $1,000 will be delayed until the money is withdrawn from the account. But a $1,000 contribution to a Roth 401(k) costs exactly $1,000 in take-home pay, because the worker has to pay income taxes on it up front. The Roth funds, including the investment returns, will not be taxed when they’re withdrawn.

A Roth 401(k) might be thought of as shifting additional money into the future, allowing people to spend and consume more in retirement. (This assumes the same tax rate over a worker’s lifetime.)

The upshot: to get a set amount of after-tax money for retirement, workers could contribute less to a Roth than to a traditional 401(k). But that’s not what they do. …Learn More

Lazy teenager

Teenagers Today Work Less

Chart: A Decade of Erosion in Teens' Labor Force ParticipationTeen unemployment has shot up in recent years, and their participation in the U.S. labor force has dropped to historic lows.

These data were highlighted in a series of recent reports by the Federal Reserve Bank of Boston expressing concern that this trend may have long-term consequences for today’s teens, including lower lifetime wages resulting from their early absence from the labor market.

“This is a long-term trend that was going on prior to the Great Recession,” the author of the reports, Alicia Sasser Modestino, a former Federal Reserve researcher now at Northeastern University, said in a recent interview.

Last year, nearly 54 percent of teens in the 16-19 age range who were trying to get their first job – their official entry into the U.S. labor market – were unemployed, according to the U.S. Bureau of Labor Statistics. …Learn More

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