The New York Times just published an analysis of the Republican Tax plan, and it adversely and severely affects people (who are not millionaires) trying to save for retirement. To understand the magnitude of this, let's look at the numbers. Currently, workers may contribute a maximum of $18,000 to a 401k plan per year, another $6,000 if you're over the age of 50. Republicans want to reduce the maximum contribution to just $2,400 a year, which means an additional $15,600 in taxable income per year. That's how they plan to pay for their tax cuts for the wealthy.
According to Robert Reich, "Meanwhile, top executives continue to take part of their compensation as “deferred income” – often amounting to millions each year – on which no taxes have to be paid until they retire.
A recent study of industrialized nations finds that income inequality for retirees in the United States is already among the worst in the world. Republicans want to make it even worse."
Here's
the article:
Republicans
Consider Sharp Cut in 401(k) Contribution Limits
WASHINGTON
— House Republicans are considering a plan to sharply reduce the amount of
income American workers can save in tax-deferred retirement accounts as part of
a broad effort to rewrite the tax code, according to lobbyists, tax consultants
and congressional Democrats.
It
is unclear if Republicans will ultimately include a cap on contributions in the
tax bill that they are expected to release in the coming weeks. Such a move
would almost certainly prompt a vocal backlash from middle-class workers who
save heavily in such retirement accounts and from the asset management
industry.
The
proposals under discussion would potentially cap the annual amount workers can
set aside to as low as $2,400 for 401(k) accounts, several lobbyists and
consultants said on Friday. Workers may currently put up to $18,000 a year in
401(k) accounts without paying taxes upfront on that money; that figure rises
to $24,000 for workers over 50. When workers retire and begin to draw income
from those accounts, they pay taxes on the benefits.
Rumors
have circulated for months that negotiators were debating including a cap as a
way to help offset the revenue loss from a reduction in business tax rates that
Republicans have put at the center of their plan. Reducing contribution limits
would be, in effect, an accounting maneuver that would create space for tax
cuts by collecting tax revenue now instead of in the future.
Such
a move would be likely to push Americans to shift their savings to so-called
Roth accounts, where contributions are taxed immediately, and not when they are
drawn out as benefits. That would increase federal tax receipts for the short
run.
