[The Hill] Financial industry groups and Democratic lawmakers are concerned that Republicans’ forthcoming tax-reform bill could make a big change to the taxing of retirement funds.
Stakeholders say they’ve heard that Republicans are considering significantly lowering the amount of money people can tuck into their traditional 401(k) plans on a pre-tax basis.
Currently, people can contribute up to $18,000 annually to their traditional 401(k) plans. Those contributions are paid before taxes, meaning people don’t pay taxes on the money until they pull it out of their account.
The potential change that people following the tax bill are hearing about would lower the maximum annual contribution to $2,400. Amounts over $2,400 could be put into Roth 401(k)s, where the money is taxed upfront but not when it’s withdrawn.
It’s unclear how seriously lawmakers are considering reducing the cap on pre-tax contributions to 401(ks). But industry groups are worried that dramatically lowering the cap on pre-tax contributions would reduce the amount that people save for their retirement. |