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Surprise: Rothification May Be Back on the Table


Note: On June 29, the House Ways & Means Committee indicated that the Committee has no plans to revisit Rothification as part of the new tax reform discussions. Click here for details.

There’s no rest for the weary on Capitol Hill, as what was once thought of as “dead” may rise up from the policy ashes.

House Ways & Means Committee Chairman Kevin Brady (R-TX) clearly plans to revisit tax reform this year — and if the rumors are correct, he may try to revisit last year’s purported proposal to limit pre-tax 401(k) deferrals and move toward a Roth-type scheme as part of a so-called “Tax Cut 2.0.”

Speaking at a June 26 Washington Post event entitled “Tax Reform in America: The Six-Month Report,” Brady announced that he would be releasing additional tax cut proposals that include retirement savings provisions.

“The timeline will be to begin circulating a draft to our House Republicans after we return from the Fourth of July break,” Brady stated. “We’ll spend the month listening to our colleagues in the House about what they want to see in ‘2.0’ and incorporating those changes. I expect to see the legislative outline released in early August with votes in the fall depending on when the leadership wants to schedule them.”

Brady explained that he views the legislative effort as a package of two, three or four approaches, one of which would be to make the TCJA, which is set to expire in 2027, permanent. He also noted that he intends to revisit areas of retirement savings that were not addressed in tax reform.

“We think the time is right to help families save more and earlier in their life, whether it’s for health care or school or for their kids or retirement in the long term — [we’re] thinking through some ideas there,” Brady said.


To make up for revenue lost as a result of tax cuts, Brady will need some revenue offsets. And that’s where talk of Rothification resurfaces. Rothification — limiting the amount of 401(k) contributions that could be made on a pre-tax basis — has long been rumored as a possible revenue-raiser to “pay for” tax reform.

While a proposal never fully surfaced as part of last year’s tax reform debate, the rumors at that time were that 401(k) pre-tax savings would be limited to $2,400, with the rest considered Roth contributions.

When last year’s debate began to heat up over the policy ramifications of moving to partial Rothification, there was a back-and-forth volley between Chairman Brady and President Trump. Trump sought to put an end to any speculation when he tweeted: “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!”

At the time, however, Brady indicated that 401(k) limits were still on the table, to which the President seemed to suggest that it might be included in “negotiating.” Which brings us back to what could surface as part of Tax Cut 2.0.

Retirement Reforms?

Brady didn’t offer any other details in his interview with the Post about what retirement saving provisions he had in mind, but the likely candidates would be provisions from the Retirement Enhancement and Savings Act (RESA) introduced March 14 in the House by Reps. Mike Kelly (R-PA) and Ron Kind (D-WI).

The RESA legislation (H.R. 5282) is identical to its companion bill in the Senate (S. 2526), sponsored by Senate Finance Committee Chairman Orrin Hatch (R-UT), who will retire at the end of this term. It includes several provisions that seek to make it easier for small businesses to adopt and maintain a workplace retirement plan, such as a start-up tax credit to defray the cost of adopting a retirement plan and add an additional tax credit for plan designs with an automatic enrollment feature.

Among other things, RESA also aims to expand retirement plan coverage by allowing two unrelated employers to join a pooled employer plan (PEP) and seeks to improve upon the existing 401(k) safe harbor plan design by giving small business owners more flexibility to switch to a safe harbor plan.

Other possibilities that may be considered include a universal savings account that Brady discussed during last year’s debate over tax reform. Under this concept, the account would serve as more of a general savings vehicle outside the employer-based system in which account holders could withdraw both contributions and earnings at any time, and for any reason, without tax penalties. This would likely be detrimental to the employer-based system and costly to implement from a government accounting perspective.

In addition, easing the restrictions on open MEPs, allowing electronic disclosure, increasing automatic cashout limits and providing an annuity safe harbor could be in the mix. Measures that would address those areas were discussed at a May 16 House Education and the Workforce subcommittee hearing.

Will it happen? Will Rothification be resurrected? Time will tell. But stay tuned.