The Senate version of the Tax Cuts and Jobs act, released last week, included a provision that would eliminate catch-up contributions to 401(k) accounts for workers making more than $500,000 a year.
Over the weekend, Sen. Orin Hatch, R-UT, chair of the Senate Finance Committee, filed an amendment to the bill that would allow catch-up contributions but require that they be made on an after-tax, or Roth basis.
Hatch's amendment would increase the existing catch-up contribution limit of $6,000 to $9,000.
Overall, the Senate version comes closer to achieving the White House's repeated promises to deliver tax cuts to all Americans; the House version of the TCJA, which passed out of the Ways and Means Committee last week and could be brought to a House vote by week's end, showed various levels of tax increases among middle-class earners within the 10-year budget window.
The Senate bill delivers tax cuts to all income brackets throughout the 10-year budget window, according to analysis by the Congressional Joint Committee on Taxation.
But Senate Democrats can expect to levy claims that the cuts disproportionately benefit wealthier taxpayers.
As for 401(k) catch-up contributions, Senate Republicans are positioning the proposed cuts as revenue raisers in the event that House members refuse to eliminate a $10,000 cap on state and local property tax deductions. The Senate version of the bill eliminates all state and local tax deductions, including the $10,000 deduction of property tax allowed in the House bill.
The Senate Finance Committee is scheduled to begin proceedings Monday afternoon.
Here are 11 facts to consider on catch-up contributions and property tax deductions as the Senate sets out to mark up its version of the TCJA this week:
1. 97%
That's how many 401(k) plans allowed catch-up contributions for workers over age 50 in 2014, according to the Plan Sponsors Council of America, which reviewed 592 workplace retirement plans covering 8.8 million savers.
2. 22%
That's how many eligible 50-year-and-older participants made catch up contributions in 2014.
3. Small-plan participants more likely to make catch-up contributions
While nearly all plans permit catch-up contributions, participants in the smallest plans make them at substantially higher rates than those in large and mega plans.
Nearly 38% of pre-retirees made catch-up contributions in plans with one to 49 participants. Only 13% of eligible employees in plans with more than 5,000 participants made catch-up contributions.
4. 48%
Of the plans that do offer catch-up contributions, nearly half of sponsors will also match the catch-up savings pre-retirees defer to 401(k)s.
5. Smallest employers also make most use of catch-up matches
Small businesses offer matching catch-up contributions at the highest rate—nearly 62% of 401(k) plans with one to 49 employees will match extra deferrals. Only 38% of plans with 1,000 to 5,000 participants will match catch-up contributions.
6. Half a billion dollars
That's how much the JCT says would be raised in the 10-year budget window by prohibiting earners making more than $500,000 annually from making catch-up contributions.
7. Hatch amendment would impact more pre-retirees
Sen. Hatch's amendment would undoubtedly impact more pre-retirees than the provision to limit catch-up contributions for those make more than $500,000.
