For the last few weeks, U.S. tax reform deliberations put 401(k) retirement plans on a roller coaster ride. Rumors abounded, including, for example, whether legislators would impose new contribution caps, or eliminate pre-tax contributions altogether. Legislators often have targeted the tax-advantaged status of retirement savings plans as a revenue raiser to pay for federal programs and competing tax breaks. The House Republicans’ release of the Tax Cuts and Jobs Act (the “Act”) on November 2 appears to have stopped the roller coaster – at least temporarily.
The Ways and Means Committee is touting that the “bill retains the popular retirement savings options – such as 401(k)s and Individual Retirement Accounts – as Americans know them today.” This is clearly the case. However, claims that there are no changes to 401(k) or other retirement savings plans are not quite accurate. While the current version of the Act does not lower 401(k) contribution limits or require the Rothification of 401(k) plans as had been rumored, it does contain some changes to retirement savings rules – many of which are pulled from the 2014 tax reform effort spearheaded by former Ways and Means’ Chairman Dave Camp. Most of these provisions appear to have been included to accelerate the tax inclusion of retirement savings and, as a result, reduce the Act’s price tag. Continue Reading