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Retirement Savings Policy by Michael P. Barry

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Chapter 17 401(k) Tax Code Nondiscrimination Rules

As we discussed in Chapter 16, the Tax Code’s retirement savings tax incentives inevitably provide the most incentive to high paid/high income taxpayers. In Chapter 5, we discussed how the Tax Code nondiscrimination rules, the compensation limit and the limits on benefits and contributions work together to “flatten out” benefits provided under a firm’s tax qualified retirement plan. Generally, to provide the maximum benefit to the high paid, similar retirement benefits must also be provided to some reasonably broad group of low paid employees.

Because the DB system is, from the participant’s point of view, “involuntary,” it is (relatively) easy to implement the Tax Code nondiscrimination rules ...

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