401(k)s ‘OK’ in GOP Tax Reform Proposal, But…

A document accompanying the Tax Cuts and Jobs Act goes on to state that “Americans will be able to continue making both traditional, pre-tax contributions and ‘Roth’ contributions in the way that works best for them.”

 

With that announcement, American workers, plan sponsors and the retirement industry at large looks to be able to heave a huge sigh of relief over changes that had been actively under discussion in recent weeks, notably some kind of cap on the amount that workers would be able to save on a pre-tax basis in their 401(k)s.

 

On the other hand, changes in the tax reform proposal regarding “pass-through” entities are complex, and may yet be problematic with regard to disincentivizing small business owners to establish and maintain a retirement plan for their workers. We are working through those provisions now, and will provide an update on that in the near future. This is an issue that we have raised previously and highlighted for ASPPA members (see Tax Reform Proposal Could Undermine Incentives for Small Business Plans). 

 

There are a few simplification provisions relating to retirement in Section F of the bill that ASPPA has supported for some time, including a provision simplifying the record keeping of hardship distributions. 

 

These issues – and the potentially damaging aspects to retirement savings as a “pay for” other tax reform changes – have been front and center with both ASPPA and the American Retirement Association for nearly a year now. Less than two weeks ago, the ARA issued a set of “Retirement Policy Principles for Tax Reform” emphasizing not only the importance of the nation’s private retirement system, but the dangers inherent in changing current retirement savings incentives for solely for the purpose of raising revenue for other tax objectives.

 

“This is obviously great news,” said Brian Graff, CEO of the American Retirement Association, in response to the news about 401(k) plans, “but we need to keep the pressure on because we know that things can change, and we certainly can’t afford to take things for granted.”

 

And, certainly in the case of taxation of income for pass-through entities, there may yet be issues to be resolved.

 

The full legislative text of the 429-page bill is here, and a 76-page summary is here. Our additional, in-depth coverage of the tax reform proposal can be found here and here.