Hatch Proposes ‘Mini-Rothification’ for 401ks, IRAs

401k, taxes, Trump, IRA
Something to consider.

It’s not over—not by a longshot.

Sen. Orrin Hatch, R-Utah, will propose eliminating the current pretax 401k catch-up contribution, Fox Business reports.

People age 50 and older can currently contribute an additional pretax $6,000 to their 401k on top of the $18,000 limit in order to “catch-up” in the years just prior to retirement.

Hatch proposes raising the catchup limit to $9,000, but taxing those contributions when they are made and forcing them to become Roth 401k contributions, according to the network.

“50-year-old contributors and older would pay the tax today on the catch-up contribution, but it would be tax-free when they withdraw the money during retirement,” it notes. “Senator Hatch is also proposing an amendment which would change the law allowing people to convert traditional IRA’s to Roth IRAs.”

Questioning whether or not the Hatch amendment amounts to “mini-Rothification,” or plans floated recently by the Trump Administration to significantly cut pre-tax contributions, American Retirement Association president Brian Graff took to LinkedIn to offer his interpretation.

“Last night Senator Hatch filed an amendment to his own tax reform proposal which would require that all catch-up contributions be treated as Roth contributions,” Graff wrote. “As a bit of a trade-off, the proposal would also increase the catch-up contribution limit to $9,000.”

“Note this is different than the proposal previously revealed that would prohibit those making over 500k from making any catch-up contributions, which we are working hard to get stricken,” he added. “It’s our understanding this new Hatch amendment is a placeholder at this point in case they need revenue as the process unfolds. So we will see if it actually comes up.”

White House Budget Director Mick Mulvaney said on Monday that the Republican tax reform plan could be put to a vote and “passed this week.”

John Sullivan
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With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.

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