WASHINGTON – President Donald Trump vowed on Monday to protect a popular retirement savings program, pledging to leave it untouched in the forthcoming Republican tax overhaul plan.
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Mr. Trump, in a tweet, shot down an idea that had been circulating in Washington policy circles and worrying the retirement-savings industry: limiting pretax contributions to retirement accounts.
"There will be NO change to your 401(k)," the president wrote on Twitter. "This has always been a great and popular middle class tax break that works, and it stays!"
Mr. Trump's comments point to a challenge Republicans face as they race to write and pass a tax plan: They have ambitious targets for rate cuts and a self-imposed $1.5 trillion limit on the size of the tax cut over the decade.
Those guidelines press them to look for large tax breaks they can limit or repeal and to seek budgetary maneuvers that shift the timing of tax revenue into the period measured by congressional scorekeepers. The proposal to cap 401(k) contributions at as little as $2,400 a year and push additional savings into so-called Roth-style accounts where posttax dollars go in and money comes out tax-free in retirement was a combination of both. Much of the revenue it generated would have come from accelerating tax collections from the future into the near term.
But even a few days of chatter showed the concept's unpopularity, especially at the $2,400 level. By foreclosing changes to 401(k) plans, Mr. Trump again positioned himself in favor of a broadly enjoyed tax break and the "middle class." Other parts of the tax plan that he and congressional Republicans support would deliver significant benefits to households at the top of the income scale. Exact calculations of the plan's impact won't be possible until Republicans release a more specific proposal.
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"I plan to hold President Trump to his word that he and Congressional Republicans will not put forward any plan that taxes the retirement savings of American families," Rep. Richard Neal (D., Mass), the top Democrat on the House Ways and Means Committee, said Monday morning. "We should be using tax reform as an opportunity to ensure that every American worker has the chance at a secure retirement, rather than using the retirement savings of middle-class families to pay for tax cuts for the wealthy."
Lobbyists and others in the retirement and financial-services industries who had spoken to congressional staff and committee members said last week that lawmakers are looking at proposals that would allow 401(k) participants to contribute significantly less before taxes than what is currently allowed in a traditional tax-deferred 401(k).
Those changes could have discouraged people from saving as much money, potentially limiting retirement savings and the fees that financial-services companies collect.
The Save Our Savings Coalition -- a group that includes AARP, American International Group Inc. and Northern Trust Corp. -- said it was "thrilled" by the president's statement.
"We will continue to fight to ensure lawmakers do right by the middle class by preserving and expanding our retirement system as tax reform moves through Congress," the group said.
A version of the idea appeared in a draft tax plan Republicans released in 2014. Separately, President Barack Obama proposed barring people from making additional tax-advantaged contributions once their account balance hit $3.4 million. He also would have limited the tax benefits top earners could get from deferring taxes. None of those proposals went anywhere.
Currently, employees under age 50 can save up to $18,000 a year in a 401(k) before taxes, while those 50 or older can set aside up to $24,000. In an IRA, the annual contribution limits are capped at $5,500 and $6,500 for the same age groupings. The 401(k) limits are scheduled to rise to $18,500 and $24,500 in 2018.
Members of the House Ways and Means Committee are widely expected to release a version of the tax bill by mid-November, with the Senate Finance Committee to follow soon afterward.
They are working off a framework jointly written by the administration and House and Senate Republicans. That plan said Republicans would preserve tax benefits for retirement savings, but also left room for some changes.
"The committees are encouraged to simplify these benefits to improve their efficiency and effectiveness," the framework said. "Tax reform will aim to maintain or raise retirement plan participation of workers and the resources available for retirement."
It was unclear on Monday what possible changes would satisfy both the policy framework and the president's tweet.
--Anne Tergesen contributed to this article.
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(END) Dow Jones Newswires
October 23, 2017 10:47 ET (14:47 GMT)