President Trump reassured people Monday morning that their 401(k) retirement savings would not be affected by a potential tax reform bill Republicans are hoping to push through Congress, and appeared to rule out one option congressional Republicans were thought to be mulling to pay for tax reform.
"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!" Trump tweeted Monday morning.
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!— Donald J. Trump (@realDonaldTrump) October 23, 2017
The Trump White House has proposed a tax reform bill that would cut corporate and individual tax rates. The Trump administration says the cuts would spur economic growth and help boost people's incomes.
The emerging plan would also get rid of several tax deductions in order to help pay for the plan, leading some to worry that some of the most popular would fall away. But Trump's tweet indicates that he has no plan to limit people from using pre-tax savings for their retirement, as they can now in their 401(k) and IRA plans.
Before Trump's tweet, the financial industry expressed fears Congress might be looking to put limits on the ability of savers to dedicate some of their pre-tax income to their 401(k) plan. One version of that plan would have lowered annual contribution limits to 401(k)s, forcing savers to rely more heavily on retirement plans like the Roth IRA, into which people put money that has already been taxed into their retirement. Roth IRA savings can be withdrawn in retirement free of taxes, since taxes were paid up front, while withdrawals from 401(k) plans are taxed.
Leaning more on Roth IRAs would create more tax revenue up front for the government, and is seen by some as an accounting gimmick that creates revenue earlier and helps pay for the broader tax reform bill.
But while Trump said the traditional 401(k) plan "stays" under the GOP tax plan, it's not clear if that also means no limits will be placed on future 401(k) contributions.
After unveiling a tax reform framework in September, President Trump and Republican leaders in Congress have faced reluctance on the part of some rank-and-file members to eliminate some of the tax breaks targeted to be ended in favor of lowering tax rates. In particular, representatives of blue states have rebelled against the idea of ending the deduction for state and local taxes.
Changing the tax treatment of 401(k)s might have been another attractive way for Republicans to raise revenues because of the sums involved. The Treasury expects that such plans will lower revenues by almost $600 billion over the next five years.