- Kevin Lamarque/Reuters
- Reports on Friday indicated that Republicans may include a cap on contributions to traditional 401(k) plans in their tax-reform package. This change could help GOP leaders with the tax plan’s tricky budget math. President Donald Trump tweeted his opposition to such a change on Monday, saying 401(k) tax deferment is a “great and popular middle class tax break.”
President Donald Trump used Twitter to dispel reports that the forthcoming Republican tax-reform plan would include big changes to how people could save for retirement.
On Monday, Trump said this change would not take place because it is a popular middle-class tax break.
“There will be NO change to your 401(k),” Trump tweeted. “This has always been a great and popular middle class tax break that works, and it stays!”
According to reports, Republican House leaders were considering a plan that would cap the annual savings for a traditional 401(k) or Individual Retirement Account at $2,400 and anything saved after that must be placed in a Roth IRA. Roth accounts are taxed as money goes in rather than when it is spent, as opposed to a traditional 401(k).
As it stands now, traditional 401(k)s contributions are capped at $18,000 per year for people under 50 and $24,000 for people over that age.
While this change would have generated increased revenue to help offset tax cuts, there was concern from some in the asset-management industry that this could suppress retirement contributions.
There were also questions about the long-term effect on revenue from shifting the tax payments on retirement savings. A 401(k) cap may have decreased revenue in the long run, which would be problematic under the Senate’s budget reconciliation rules. Reconciliation, which allows Republicans to avoid a filibuster in the Senate, also requires that any bill being considered must not add to the deficit after 10 years.