Following reports that the Republican tax plan could dramatically reduce the amount of pretax money Americans are allowed to contribute to their 401(k) plans, President Donald Trump tweeted Monday morning that there will be “NO change to your 401(k)”:
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!
— Donald J. Trump (@realDonaldTrump) October 23, 2017
This is great news for American workers, as some reports said the tax plan could lower the annual cap for pretax contributions from the current $18,000 for those under 50 to as low as $2,400. Amounts over $2,400 could then be placed in a “Roth” Individual Retirement Arrangement, which don’t tax earnings when they’re withdrawn later on.
However, when Senate Majority Leader Mitch McConnell was asked Sunday whether the Senate would ever consider limiting 401(k) tax benefits, McConnell wouldn’t rule it out. “We’re just beginning the process of actually crafting the bills,” McConnell said, adding that “it’s way too early to predict the various details.”
Lowering the cap for pretax contributions would be an easy way for the GOP to offset the numerous tax cuts the Trump Administration is pursuing. However, it would be an extremely unpopular fix: According to the Investment Company Institute, some 55 million Americans participate in 401(k) plans, holding about $5 trillion in assets.
The 401(k) is by far the most popular, easiest, and most effective way for Americans to save for retirement. It would be a huge misstep for either the Trump Administration or Congress to target those plans. Giving the middle class more tax breaks wouldn’t add up to much in the long-term if the cap to 401(k) tax deferment is so dramatically slashed.
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