How the GOP Tax Bill Could Squeeze Your 401(k)
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Congressional Republicans are looking for ways to generate revenue to support broad reductions in individual tax rates. One idea is to limit the amount of pretax money households can sock away for retirement saving. Such a move would likely generate significant political blowback, but it hasn’t been explicitly ruled out, stirring worry among industry lobbyists.
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Members of the House Ways and Means Committee are widely expected to release a version of the tax bill by mid-November. Specifics on a wide range of issues remain unclear. Emily Schillinger, a spokeswoman for the Ways and Means Committee, declined to comment.
Lobbyists and others in the retirement and financial-services industries who have spoken to congressional staff and committee members say lawmakers are looking at proposals that would allow 401(k) participants to contribute significantly less before taxes than what is currently allowed in a traditional tax-deferred 401(k). An often mentioned amount is $2,400 a year. It isn’t clear whether that would apply only to 401(k)s or IRAs or both.
Currently, employees under age 50 can save up to $18,000 a year in a 401(k) before taxes, while those 50 or older can set aside up to $24,000. In an IRA, the annual contribution limits are capped at $5,500 and $6,500 for the same age groupings. The 401(k) limits are scheduled to rise to $18,500 and $24,500 in 2018.
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Under some of the proposals being floated, contributions above the amount set for tax-deferred savings would have to go into a Roth account. The change wouldn’t affect existing balances in traditional 401(k)s and IRAs, those people said, and it is likely that any matching contribution from an employer would continue to go into a tax-deferred 401(k) account.
Congress’s goal in making the switch is to reduce a tax break that is projected to cut federal revenue by $115.3 billion this fiscal year so the money can be used to pay for lower tax rates. The switch could boost government revenue over the next decade, the period when the tax bill will likely face a $1.5 trillion cost constraint.
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https://www.wsj.com/articles/talk-of-retirement-savings-cap-rattles-financial-industry-1508497200?
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But, hey, as long as members of Congress have their own pensions, and as long as cutting tax rates on them, why not screw the middle class?