You may have an option to save up to $69,000 in a tax-advantaged retirement account this year.
But, more likely, you don’t have access.
In 1962, Stanford grad student Phillip Knight wrote a research paper about running shoes.
In the paper, he argued that shoe companies underserve the U.S. market. Knight ran track in college at the University of Oregon. So he understood the sport’s equipment needs and shortcomings.
Knight also knew that compelling alternatives already existed, but only elsewhere. He felt adamant that U.S. runners deserved access to them.
A few years after graduating, Knight embarked on a career in shoe sales. He started off as an independent salesman, representing Onitsuka, a Japanese brand, in the U.S.
By the time Knight finally retired in 2016, he still worked for himself. And the shoe company he created, called Nike, had sold $32.4 billion worth of shoes and other gear that year.
The Revenue Act of 1978 contains a section less than two pages long. But that section changed how you save for retirement.
But this section, “Section 401(k),” didn’t spell out a nuanced, national retirement plan. In fact, the section didn’t seek to create a new, widely-available retirement plan at all.
The section only addressed tax-deferred profit sharing programs. And from that, a benefits consultant in Pennsylvania came up with an idea. For the first time, he put executive bonuses in a tax-deferred retirement plan.
The 401(k) plan was born, but only for some.
Phil Knight encountered resistance when he started selling Japanese shoes in the U.S. Shop owners told him, “Kid, what this world does not need is another track shoe!”
The running shoe industry in the early 1960s took customers for granted.
No one gave much thought to what people actually needed on their feet. No one considered how feet might differ. And no one realized that certain people might need more space, more support, more cushioning.
So shoe design and production took a one-size-fits-all approach.
At the time, market dynamics encouraged this narrow thinking. Adidas dominated the U.S. market for running shoes. The Germany company possessed “all the arrogance of unchallenged dominance.”
Adidas running shoes were expensive. Still, most American athletes wore them, for lack of access to other options.
The retirement plan landscape looks like the Adidas-dominated shoe market of the 1960s.
Compelling options are out there:
- Pre-tax and after-tax account options
- Matching employer contribution
- Diverse, low-cost investments
But only if you happen to work for an employer that offers such a benefit.
In fact, a small number of 401(k) plans even allow “voluntary contributions.” You contribute these retirement dollars on an after-tax basis. And then with an “in-plan rollover” option, you can move this money straight into a Roth account.
Everyone with a 401(k) can contribute $23,000 in 2024. But those with this voluntary, after-tax option can contribute up to $69,000. We call this strategy a “mega backdoor Roth.”
Yet, most people lack access. In fact, almost half of all U.S. workers aren’t granted any workplace retirement plan at all.
Bill Bowerman coached the University of Oregon track team for 24 years. No American understood running better than him.
So Knight wanted his former coach’s opinion. Did he see the benefits of better access to different running shoes? When Knight pitched his idea, Bowerman asked to become a 49% partner in the venture.
Like Knight, Bowerman valued better options for more runners.
In one instance, Oregon runners struggled to grip the university’s new track. Bowerman knew he needed a better sole for the team’s shoes.
One morning shortly after, he was eating breakfast in his kitchen. As he sat looking at his wife’s waffle iron, an idea struck him. A waffle-shaped sole would grip the track better.
The idea changed running shoes forever. If only because Phil Knight and his team then ensured that everyone could access the shoes.
Like a young Phil Knight, you know your retirement savings situation better than almost anyone. You understand your needs and shortcomings.
And you now know that compelling alternatives already exist. If you work for yourself, you can create your own 401(k) plan. You even can include a mega backdoor Roth option.
But those compelling alternatives may only exist elsewhere for you right now.
The opportunity to save $69,000 in a tax-advantaged account is no small thing. You should be adamant that you get access.
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About the author: Kevin Mahoney, CFP®
Hi, I’m Kevin. I’m a financial advisor in Washington, DC. I’m also the founder of Illumint, an independent financial planning company in the District that specializes in financial planning for Millennials like you. I empower our generation with the confidence to invest an inheritance, financial gift, or extra savings. If you’re new to Financially Well, welcome – you now have access to the leading finance podcast for Millennials. I encourage you to read, watch, or listen to the ideas I’ve shared about making your money work for you. And then when you’re ready, please send me your thoughts & questions!
