Tax Reform has gained momentum after the House passed the budget resolution on Oct. 26, clearing the way for tax legislation. Meanwhile, concerns about possible changes to the 401(k) retirement saving plans have heated up recently.
Critics say that the upcoming bill will include a cutback in tax incentives for 401(k)s and discourage workers from saving.
Today, taxpayers can set aside a certain amount of money for their retirement plans, without paying taxes upfront. The current annual contribution limit for a 401(k) is $18,000 and it will be $18,500 in 2018. And people age 50 and older can make so-called catch-up contributions of $6,000.
Reports surfaced that the Republicans will cap the annual contribution to $2,400 for traditional 401(k)s. President Donald Trump, however, ruled out any changes to retirement plans in the upcoming tax bill.
“There will be NO change to your 401(k). This has always been a great and popular middle class tax break that works, and it stays!” stated Trump on Twitter on Oct 23.
House Ways and Means Committee chairman Kevin Brady hinted that Republicans are exploring a number of ideas, and potential changes to retirement plans are still on the table.
“We think in tax reform we can create incentives for people to save more and save sooner,” he said at an event hosted by the Christian Science Monitor on Oct. 25. Brady has not announced the specifics of the planned changes.
More than 50 million Americans had active 401(k) accounts in 2015, according to Investment Company Institute (ICI). And as of June 30, 401(k) plans held nearly $5 trillion in assets, accounting for 19 percent of the U.S. retirement assets, according to the ICI’s estimates.
“The President wants to continue to fight and push for protection of Americans’ retirement,” said White House Press Secretary Sarah Sanders on Oct. 27.
“That’s the President’s position and that’s the same today as it was earlier this week.”
The Trump administration unveiled a nine-page unified framework for tax reform in late September. Republican lawmakers are still negotiating on the details of the final legislation including 401(k)s and they plan to release a tax bill on Nov. 1.