401(k) plans favor rich people. Here's how to change that.

The 401(k) is the most common way in America to save money for retirement. But even before the coronavirus pandemic, that approach was failing most workers. Fully half of U.S. families have no retirement accounts whatsoever, according to the Federal Reserve. 

Meanwhile, those who earn less tend to be left out: Less than 40% of lower-paid workers have retirement accounts, compared with 80% of middle- and upper-income families. Workers who do try to squirrel something away often fall woefully short, not saving enough, starting too late, or losing money through bad investment decisions or excessive fees. The median 401(k) today is worth a paltry $25,000, according to Vanguard. One reason for this disparity is that lower-paid workers have less money to start with, and most of it is spent on day-to-day living expenses. What's more, the main draw of a 401(k) — the ability to save tax-free — is essentially a subsidy that doesn't do much for low-wage earners given that they don't pay much in income taxes. In other words, a low-paid worker gets no tax advantage from putting $10 into a retirement account and would likely find it more helpful to put the money toward their bills.