WASHINGTON – House Majority Leader Kevin McCarthy said Sunday the GOP tax plan out this week will “expand” the overall amount Americans can invest in 401 (k) retirement accounts.
He also suggests the tax plan out Wednesday will attempt to push more contributions into Roth-style plans.
“The way we’ll look at the 401 (k) is we’ll protect it,” McCarthy said on Fox News’ “Sunday Morning Futures.” “We’ll expand the amount that you can invest, but we’ll also give you an option to actually not be taxed later in life – not to have that tax burden (looming) over you in the future, but actually have greater income in the future.”
If there is more prioritization to Roth-style plans the IRS would collect tax money immediately on the investment, whereas traditional 401 (k) plans are tax deferred until withdrawal for retirement.
The details are being worked out in the House Ways and Means Committee where Chairman Kevin Brady (R-Texas) confirmed they are interested in expanding the caps on “overall” retirement savings and looking at pre-tax and post-tax options.
President Trump initially denounced proposals to limit the amount of pre-tax dollars that can be deferred in retirement savings saying the middle-class benefit must be preserved.
The comments by McCarthy ensuring that Americans are “not taxed later in life” signal the tax treatment for Roth-IRA plans where individuals invest their after-tax dollars into accounts and can withdraw cash upon retirement tax free.
Nevin Adams, a spokesman for the American Retirement Association, cautioned that any change to retirement accounts should be aimed at helping workers save, “rather than solely for the purpose of raising revenue for other tax objectives.”
Previous news reports suggested House Republicans were mulling a tax plan to cap 401 (k) employee pre-tax contributions to $2,400 a year and then force any retirement savings beyond that to be made on a Roth (after-tax) basis.
The report by Employee Benefit Research Institute found that such a change would impact workers throughout all age and income brackets.
The average employee 401 (k) contribution for workers making between $10,000 – $24,999 was $3,203 in 2015 – well above the cap.