GOP May Use Retirement Accounts to Pay for Tax Cuts

Sources say Republicans may cap contributions to 401(k) accounts at $2,400 a year
By Michael Harthorne,  Newser Staff
Posted Oct 21, 2017 11:24 AM CDT
GOP May Use Retirement Accounts to Pay for Tax Cuts
In this Oct. 11, 2017, photo, President Trump speaks about tax reform during an event at the Harrisburg International Airport in Middletown, Pa.   (AP Photo/Alex Brandon)

Multiple sources say Republican lawmakers may be setting their sights on Americans' retirement accounts to pay for tax cuts, specifically to the business tax rate. The New York Times reports Republicans are expected to release a tax reform plan sometime in the next few weeks, and that plan could include a drastic reduction in the amount of money workers are allowed to put into 401(k) accounts. Workers are currently allowed to contribute $18,000 annually to 401(k) accounts ($24,000 if they're over 50 years old), but sources say Republicans are considering capping contributions at $2,400 annually. It's unclear if the cap would also apply to IRAs, which are currently limited to $5,500 annually ($6,500 for workers over 50), according to the Wall Street Journal.

The idea is that because income put into a 401(k) or IRA isn't taxed until it's withdrawn years later, lowering contributions would generate immediate tax revenue for the government—an estimated $115 billion in 2018. But that represents less than 8% of the tax cut planned by Republicans, and industry groups worry it will reduce the amount of money Americans save for retirement. One person working to preserve retirement savings during the tax reform process tells the Hill capping contributions at $2,400 could be "devastating for long-term retirement security." It would also likely be massively unpopular with middle-class workers. “Republicans are so determined to cut taxes on the wealthy that they’re willing to tax the retirement accounts of millions of middle-class Americans,” Sen. Chuck Schumer says. (More 401(k) plans stories.)

Get the news faster.
Tap to install our app.
Install the Newser News app
in two easy steps:
1. Tap in your navigation bar.
2. Tap to Add to Home Screen.