Financial Planning, Retirement

The Tax-Preferred Treatment Of 401(k)s Is Safe For Now

11/8/17 8:00 AM

iStock-491753396.jpgLast month we learned that Americans will be able to contribute $500 more to their 401(k) plans in 2018, bringing the annual contribution limit up to $18,500. However, there have been rumors circulating in Washington D.C. recently that lawmakers are considering capping the amount workers can set aside in a 401(k) each year at just $2,400 to help offset the revenue loss resulting from planned tax rate reductions. Fortunately, the first draft of potential tax reform released by the U.S. House of Representatives appears to have abandoned such efforts and even explicitly stated that there will be “no changes to the popular retirement savings options that Americans have today.”

Investment Company Institute (ICI) President and CEO Paul Schott Stevens in a statement commended House Ways and Means Committee Chairman Kevin Brady for recognizing “the important role that current retirement savings tax incentives play in helping Americans prepare for retirement.” The first tax reform bill from the House will likely also be well received by the American Retirement Association (ARA), which late last month warned that “limiting employees’ tax deductions for 401(k) savings in the absence of other meaningful changes to promote retirement savings by middle class families would … in fact be a middle-class tax increase that directly and immediately threatens workers’ retirement security.”

All things considered, though, the legislative process in D.C. is just getting started. For example, the House Ways and Means Committee this week will begin marking up its bill and allowing amendments before a final vote on the House floor occurs early next week. Further, the Senate will unveil its own version of a tax bill this week with target passage of its bill later this month. Since it remains uncertain how any differences between the two chamber’s bills will be reconciled in the final piece of legislation that makes its way to the President’s desk, the tax-preferred treatment of 401(k) plans is still at risk, albeit less so than earlier feared. As always, we will keep you informed of any important developments.



Sources: U.S. House of Representatives, NAPA, ICI, ARA

Post author: Charles Couch