The recent Tax proposal that narrowly passed the house is heading to the senate. One of the proposals is to limit pretax contributions to your 401k or 403B. This is not a good sign for the middle class saving strategy in its current form. For more information click to the original link below or read the excerpt. Following the link....
Authored by Kevin Dugan of the New York Post. 10 20 17
Proposed Tax changes to your investment strategy.
Wall Street pushed back hard on Friday against a report that congressional Republicans are weighing a plan to severely limit the amount of money Americans can contribute to their 401(k)s.
The Capitol Hill lawmakers, searching for ways to pay for President Trump’s broad proposed tax cuts, are eyeing a $2,400 cap on pre-tax contributions to 401(k) plans, used by millions of US workers to save for retirement.
Currently, the pre-tax limit for such contributions is $18,000 a year.
Contributions to 401(k)s are tax-deferred, which means that the government won’t be able to get its cut until retirees start withdrawing money from those accounts — which they must do by age 70¹/₂.
As the number of US workers covered by pension plans shrinks, 401(k) plans are becoming more widely used — and necessary.
There is roughly $4.7 trillion in 401(k) plans in the US.
The world’s largest money managers, which handle more than $20 trillion in assets, bristled that Congress wanted to cap contributions, according to The Wall Street Journal report.
The Vanguard Group, the world’s second-largest asset manager, founded by investing legend Jack Bogle, is “greatly concerned over legislation that would negatively impact investors’ ability or incentive to save for retirement,” spokeswoman Laura Edling told The Post.
”Proposals that mandate contributions be made after tax should be carefully reviewed to take into account their impact on incentives to save,” Edling, whose company managed $4.5 trillion, added.
The Investment Company Institute, a trade group of mutual fund companies, also opposed the talk of caps.
“We believe the best way to maintain or raise retirement plan participation and the resources available for retirement is to preserve the current system of tax deferral, which has encouraged millions of Americans to save for retirement,” Mike McNamee, the group’s spokesman, told The Post.
It’s also a curious time to float such a proposal, since retirees are required to withdraw once they hit 70¹/₂ years old, and more boomers are starting to retire. When they withdraw their money, the government will collect income taxes on those withdrawals.
“That’s a pretty low limit,” Andrea Coombes, a retirement specialist at NerdWallet, told The Post of the proposed $2,400 cap. “Ultimately, the goal is save what you can.”
It’s unclear if the caps will survive. The House Ways and Means Committee, which is writing the tax plan, isn’t expected to release the details of the bill until the middle of next month.