Congress is looking for ways to raise revenue as part of a tax overhaul plan, and one of the methods reportedly under consideration is to curtail how much pretax money workers can contribute to their 401(k) and similar accounts. Such a move would strike at a way that tens of millions of Americans use to save for retirement.
The suggestion has already run into some resistance, even if it isn't an official policy proposal. President Donald Trump said Monday in a tweet that "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!"
Why are 401(k)s so important?
U.S. households are increasingly in charge of saving for their own retirements.
Traditional pensions, which pay out a set amount to retirees, are growing closer to extinction. Plus, the retirement of the baby boomers is straining the Social Security trust fund, which is expected to run dry in 2034.
One of the big benefits of a 401(k) is that it can make saving automatic. Deductions get taken out of each paycheck. A growing number of employers are also automatically enrolling their workers into a 401(k) program and even automatically increasing their contribution rate each year, in hopes of setting workers up for better retirements.
Why would Congress consider this in the first place?
Washington is hoping to cut income-tax rates across the board, but the only way to do that without sending the national debt skyrocketing even higher is to raise revenue elsewhere.
By curtailing the amount of 401(k) contributions that are tax deferred, Congress would be able to reap some of those dollars now rather than waiting to tax them when they're withdrawn decades in the future.
Reference: CNBC
Read more: https://www.cnbc.com/
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