Push to require Roth 401(k) savings over traditional plans may re-emerge

Rothification, which set off a furor in 2017 as Congress debated tax reform, could find its way into new bills next year, experts say

Jun 26, 2018 @ 4:04 pm

By Greg Iacurci

Retirement plan advisers who thought Washington had ditched the idea of requiring Roth 401(k) savings instead of traditional 401(k)s should think again.

Those who closely follow retirement policy say senior legislators on Capitol Hill are again whispering about so-called Rothification. The idea could re-emerge, perhaps to make up for tax-revenue shortfalls related to other retirement legislation being floated, observers said.

"Rothification is not dead," Robert Holcomb, vice president of legislative and regulatory affairs at Empower Retirement, said Monday at the Kohler Retirement Plan Advisor Conference in Kohler, Wis. "[It] is going to raise its head again."

The idea to change the calculus between traditional and Roth savings for 401(k) investors set off a furor in the second half of 2017 as Congress debated its tax-reform legislative package.

Concern began to grow in the weeks leading up to early November (when a bill in the House was released) that Republicans would limit pre-tax 401(k) contributions to as little as $2,400 from the current $18,000 threshold. Savings beyond that limit would go into Roth accounts.

(More: Ted Benna, father of the 401(k), thinks tax reform that favors Roths is 'pretty stupid')

By having 401(k) investors pay tax upfront on Roth savings, as opposed to deferring tax until retirement with traditional accounts, Republicans could budget revenue sooner to pay for cuts to corporate and individual tax rates.

But some opponents argued that paying tax immediately would dissuade employees from saving money in 401(k) plans. In rare unity, AARP, financial services companies and trade groups, and others formed the Save Our Savings Coalition to lobby against Rothification and other retirement proposals.

The situation came to a head and President Donald J. Trump unleashed a characteristic tweet storm, proclaiming there would be "NO change to your 401(k)."

Rothification ultimately never came to pass. But that may not be the end of the story.

As Mr. Holcomb of Empower explained: "Once a pay-for has been identified, it never really goes away."

Indeed, the industry was faced with similar Roth proposals just a few years ago. Former Rep. David Camp, R-Mich., who was chairman of the House Ways and Means Committee, tried advancing the concept in 2014 as part of his tax-reform proposal.

While Washington observers don't expect retirement measures — let alone any significant legislation — to advance ahead of this year's midterm congressional elections, chances look good for one or more notable bills to be taken up by Congress in 2019 (such as the Retirement Enhancement and Savings Act and the Automatic Retirement Plan Act).

That's especially true if Democrats win the majority in the House and Rep. Richard Neal, D-Mass., ranking member on the Ways and Means Committee, becomes chairman. Retirement reform would likely be his highest priority, observers said.

The bottom line is, for those 401(k) advisers who didn't like the idea of mandated Roth savings last year, the fight likely isn't over.


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


Female leaders highlighted as future of financial advice

InvestmentNews recognized 20 Women to Watch for their efforts to advance the financial advice industry.

Latest news & opinion

Merger mania: Why consolidation in the RIA space is about to explode

The pace is expected to pick up as big firms seek to get even bigger and older advisers look to cash out.

Voya Financial Advisors exposes more sensitive adviser information on its website

List of top advisers at the firm comes after Social Security numbers were put at risk.

Securities America hit with lawsuit seeking $18 million in damages

Firm is dealing with the fallout from a rogue broker it fired a year ago.

Brian Block continues his legal fight to stay out of prison

A judge denied Mr. Block's motion for a new trial, but he wants another day in court.

10 social media stars you're not following yet, but should be

Some of the great people using social media to discuss wealth management and financial advice who might not be on your radar.


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 investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

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


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print