A day before the House Ways and Means Committee is set to introduce a tax bill that's said to limit pre-tax 401(k) savings to $2,400 per year, Senate Democrats released what they argued is "a better plan" that lifts the cap on such contributions and creates a new auto-IRA option.
House Ways and Means Chairman Kevin Brady, R-Texas, "has refused to rule out a middle class tax on Americans' retirement," Senate Democratic Leader Chuck Schumer, D-New York, said during a Tuesday morning press briefing. "We Democrats are here to say that we vigorously oppose any tax hike on middle class retirement accounts, and that we have a better plan to make it easier for Americans to save for retirement rather than harder."
Brady said on Oct. 23 that GOP lawmakers are indeed "taking a fresh look" at savings vehicles in the tax reform bill.
"The Republicans are not proposing changes to retirement savings because they are anti-retirement savings, they are doing it because they need to raise revenue to offset the lost revenue from the proposed reduction in tax rates," Andy Friedman, head of The Washington Update and former tax attorney, told ThinkAdvisor on Tuesday. "The Democratic proposal does nothing toward that goal. In fact it does the opposite, proposing a change to the tax code that would reduce government revenue even further."
During the Tuesday briefing, Schumer said the Senate Democratic plan would lift the cap on pre-tax contributions for 401(k)s, create a new tax credit for companies who will match 401(k) contributions, and create a new auto-IRA program "for the one half of American workers under age 65" who don't have access to an employer-sponsored retirement plan.
Friedman opined that "it's too early to tell" if the GOP plan to limit 401(k) contributions will make it through the House and Senate unscathed. "The Republicans may have to change the provisions they have inserted to raise revenue depending on whether they can get the votes for the full package in the House and Senate."
As it stands now, for 2018, workers can save up to $18,500 in 401(k) accounts, with those age 50 and older allowed to save an extra $6,000.
The Democratic plan expands the amount to $24,500 in 401(k) accounts, retaining the ability to save on a pre-tax basis, and the $6,000 extra for those age 50 and older.
"We have been slack-jawed at the idea that they [GOP lawmakers] just cannot keep their hands off your 401(k)," added Senate Finance Committee Ranking Member Ron Wyden, D-Ore. "[T]he President reeled them [GOP lawmakers] back in, and Mr. Brady put it back on the table once more."
On top of 401(k) cuts, Wyden continued, GOP lawmakers "are in the process of scraping a rule that says financial advisors to retirement plans have to work in their clients' interest," referring to the Department of Labor's fiduciary rule. "Put your arms around that. That is really a radical idea: that the financial advisor should have to actually be working in the client's best interest." That rule, "is in the process of being scrapped as well."
