It’s on, then off, and then on again. General confusion surrounding the marketing and messaging of the White House agenda reached a fevered 401(k) pitch on Wednesday after a week of frantic back-and-forth over possible contribution limit cuts.
The cuts, floated as part of the so-called “sausage making” surrounding a tax reform package, hit headlines late last week, after the IRS announced a contribution limit increase for 401ks and similar retirement plans for 2018.
Financial industry outcry from advocacy groups worried over the reports prompted a typical blustery, yet reassuring, tweet from Chief Executive Trump early on Monday:
“There will be NO change to your 401(k). This has always been a great and popular middle-class tax break that works, and it stays!”
On Wednesday, however, Rep. Kevin Brady, the point person in Congress on tax reform, appeared to contradict the president, telling attendees of an event hosted by Christian Science Monitor that discussions on what may or may not happen are still underway.
While the president emphasized “no change to your 401(k),” Brady countered “in tax reform, we can create incentives for Americans to save more and save sooner. We are exploring a number of ideas in those areas.”
True to form, Trump then equivocated, responding soon after with a “we’ll see” attitude.
“Well, we’ll use it as negotiating, but trust me, it’s one of the great things,” Trump said. “There are certain elements of deals that you don’t want to negotiate with — and Kevin knows this, and I think Kevin Brady is fantastic — but he knows how important 401(k)s are.”
It all started on Friday, when The Hill reported that “the potential change that people following the tax bill are hearing about would lower the maximum annual contribution to $2,400. Amounts over $2,400 could be put into Roth 401(k)s, where the money is taxed upfront but not when it’s withdrawn.”
One day earlier, the Internal Revenue Service announced contribution limits for employees who participate in 401k, 403b, most 457 plans, as well as the federal government’s Thrift Savings Plan, will increase from it’s current $18,000 to $18,500 in 2018, barring any cuts as part of a potential tax reform deal.
“It’s unclear how seriously lawmakers are considering reducing the cap on pre-tax contributions to 401(ks),” The Hill added. “But industry groups are worried that dramatically lowering the cap on pre-tax contributions would reduce the amount that people save for their retirement.”
About 55 million Americans participate in 401(k) plans, which now hold more than $5 trillion in assets, according to the Investment Company Institute.
Investors with 401(k)s and similar defined contribution (DC) plan accounts value the control and choice of investment options offered in their plans, ICI notes.
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.
