2017 Tax Proposal Leaves 401k Untouched
11.9.2017 – On November 2nd, the Republican Party in the House of Representatives released their bill for tax reform within the United States. This long awaited bill has been discussed and speculated about since President Trump was elected last November. As we covered in our last blog, the IRS just announced an increase of $500 to the annual contribution limit for 2018. One of the ideas bounced around was to reduce this annual contribution limit to $2,400 while another was to only allow Roth (after-tax) contributions. Any changes to the structure of 401k plans would affect over 55 million Americans.
401k contributions are on the table for tax reform discussion due to the congressional budgeting process. At a high level view, when Congress discusses and passes a budget, they are only allowed to look at revenue that will be captured within ten years. Because of this, any 401k contributions that go in on a pre-tax basis are unable to be counted as revenue within the budget. A Roth (after-tax) contribution is allowed to be counted towards the congressional budget because the taxes are paid upfront. A reduction in the annual contribution limit or an elimination of the pre-tax contribution type would allow Congress to count more retirement plan dollars as revenue for budgeting purposes. This would make balancing the 10 year budget much easier.
With all of that being said, the most recent tax proposal left 401k plans untouched. 2018 contribution limits for those under 50 will increase to $18,500 and for individuals 50 and older it will increase to $24,500. The proposal is currently being discussed and reviewed in the House of Representatives. As this is being typed, the Senate Republicans have just released their own tax reform proposal.
Both reforms are in their infancies and have a long way to go before being passed into law. Retirement Plans, Inc. will be following this reform as it relates to corporate retirement plans. Check back periodically for any updated news. If you have questions regarding the tax reform in the meantime, reach out to Rich Myers at 614-551-6155 or via email at firstname.lastname@example.org.