House tax chief says he plans to preserve 401(k) pretax limits

Senate Democrats propose boosting annual limit on contributions to $24,500

Nov 1, 2017 @ 12:19 pm

By Bloomberg News

House Ways and Means Chairman Kevin Brady says he doesn't plan to reduce the pretax contributions American workers can make to 401(k) retirement plans — "unless there's broad agreement" among investment advisers that a different system would lead workers to save more.

"It will either be strengthened or enlarged or left pretty much as is," Mr. Brady told reporters Tuesday.

House tax writers, who plan to release a bill Thursday, are looking for ways to increase revenue to help offset deep rate cuts for businesses and individuals. In that context, tax writers have studied changing 401(k) contributions to limit pretax contributions.

Currently, individuals can contribute as much as $18,000 a year from pretax wages to such plans — and those over 50 can contribute as much as $24,000.

"I think this is the right thing to do," said Robert Reynolds, commenting on Mr. Brady's support for the existing 401(k) tax breaks. Mr. Reynolds is chief executive officer of Putnam Investments, a money manager, and author of a recent book called "From Here To Security," which stresses the vital role 401(k)s play in America. "Shrinking the tax benefit would have discouraged saving among the people who needed it the most — young people and lower and middle-class workers," Mr. Reynolds said.

President Donald Trump and Mr. Brady have sent mixed signals on workers' 401(k) contributions. Mr. Trump has said on Twitter that there would be "NO change to your 401(k)," calling the plans a "great and popular" tax break for the middle class. Meanwhile, last week Mr. Brady didn't rule out changes to the retirement plans, saying Republicans are "exploring a number of ideas" to "create an incentive for Americans to save more and save sooner."


Speculation about the tax treatment of 401(k) retirement accounts has been swirling in Washington for months, as Congress tries to come up with revenue raisers to offset the historic tax cuts Trump has promised. Reports last week said Republicans were considering reducing that cap to as little as $2,400 annually. The move would pull future tax revenues forward by requiring Americans to pay taxes on retirement savings now instead of when they tap their nest eggs.

Earlier Tuesday, Senate Democrats sought to highlight the rumored caps on tax-free deductions into 401(k) retirement plans.

Sen. Ron Wyden of Oregon, the top Democrat on the Senate Finance Committee, said Republicans are snatching the retirement tax advantages for middle-class Americans to bolster opportunities in the tax code for the wealthy to get tax breaks.

"We have been slack-jawed at how they just can't keep their hands off your 401(k)," Wyden said at a news conference.

Senate Democrats are proposing lifting to $24,500 the annual limit on pretax contributions into the plans for people under 50 years of age. Democrats propose allowing people over the age of 50 to save $30,500 on a pretax basis.

They're also suggesting more tax incentives for employers to provide the plans, and instituting an "auto-IRA" savings approach that would require employers that don't offer 401(k)s to enroll their workers in payroll deduction contributions to an individual IRA.


What do you think?

View comments

Recommended for you

RIA Data Center

Use InvestmentNews' RIA Data Center to filter and find key information on over 1,400 fee-only registered investment advisory firms.

Rank RIAs by

Featured video


What's the top issue on advisers minds?

Laura Pierson from Carson Group discusses how the old topic of 'Human Capital' is hot again because of millennials.

Latest news & opinion

Advisor Group acquires Signator Investors and plans on folding it into Royal Alliance

Advisor Group takes 'orphan' broker-dealer off the hands of John Hancock Financial Services.

It's official: DOL fiduciary rule is dead

The 5th Circuit Court of Appeals issued a mandate Thursday making its March 15 decision to strike down the regulation effective.

Supreme Court curbs SEC administrative law judges

'Buckets of Money' adviser Raymond Lucia is entitled to a new hearing, court rules.

Mutual funds feel the pinch of platform fees

No-transaction-fee options are a big hit with investors, but funds wind up paying the costs — and passing them on.

Divorce reduces retirement readiness

The new tax law could increase financial challenges for divorced people, but planning opportunities abound.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print