Wednesday, November 1, 2017

Watch Out for This Scam When the GOP House Tax "Reform" Plan is Announced

The tax "reform" plan will mostly be a shell game, Len Berman and William G. Gale explain at MarketWatch, one shady move the House may attempt to make in their soon to be announced tax "reform" plan:

Congressional Republicans are reportedly planning to propose a major change in the rules for defined-contribution retirement plans — 401(k)s and similar plans — as part of the tax reform plan to be unveiled this week.

The effort is wrapped in the guise of fiscal responsibility, but it is a gigantic budget could also undermine workers’ retirement security...

Enter the 401(k) retirement plan, which comes in two forms. In traditional defined-contribution plans, participants make tax-deductible (or excludible from tax) contributions during their working life and pay taxes when they withdraw funds in retirement. Those tax deductions reduce revenues a lot in the near term when the contributions are made, but the tax payments on distributions produce more future revenue as workers retire and withdraw from the plans.

By contrast, under another type of defined-contribution retirement plan, Roth 401(k)s, contributions are not deductible when the contributions are made but qualifying withdrawals are tax-free...

To generate much-needed revenue within the 10-year budget window, Republicans may reduce the annual contribution limits on traditional 401(k)s from $18,000 to $2,400 and require people who want to save more to make any additional contributions to Roth 401(k)s. That sound like a technical tweak, but it amounts to a big fiscal sleight of hand.

Forcing people to switch a large portion of retirement saving to Roth-style accounts would... shift tax payments from the future to the present. It is like the government saying that it is going to collect some of your 2030 income tax now...

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