Orrin Hatch to introduce Senate tax reform bill amendments changing 401(k), IRA classifications

By Tax Reform FOXBusiness

Sen. Hatch proposes changes to 401(k)s, IRAs

FBN's Adam Shapiro on Sen. Orrin Hatch's proposed changes to 401(k)s and IRAs in his Senate tax reform bill mark up.

FOX Business has learned Senator Orrin Hatch, Chairman of the Senate Finance committee, will introduce amendments during the mark up of the Senate's TAX reform bill that will propose changing 401(k) contributions, IRA classifications and allow businesses to deduct a portion of their dividend payments to shareholders. 

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The amendments to the chairman's mark of the Senate's Tax Cuts and Jobs Act bill include a provision that will allow publicly traded companies to deduct from their income up to 12.5% of the dividends they pay shareholders, thus lowering the company's tax bill. 

Hatch Amendment #25, as it is called, would allow the dividend deduction for five years.  The amendment includes this explanation,

"Under current law, the income of corporations is generally taxed twice -- Once at the corporate level, and then again at the shareholder level when the earnings are distributed as a dividend. Given that corporations generally deduct interest, this has created a bias in the tax law for corporations to finance via debt rather than via equity. By allowing a partial dividends paid deduction, this would partially correct for this phenomenon."

Should the amendment be included in the bill, the Joint Committee on Taxation would have to determine how much it would cost the Treasury in lost revenue.

FOX Business has also learned that Senator Hatch will propose eliminating the current pre tax 401(k) catch up contribution. 

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Under current law, people age 50 and older, may contribute an additional pre tax $6000 to their 401(k) on top of the $18,000 limit.

Hatch proposes raising the catchup limit to $9000, but taxing those contributions when they are made and forcing them to become ROTH 401(k) contributions. 

50 year old contributors and older would pay the tax today on the catchup contribution, but it would be tax free when they withdraw the money during retirement. 

Senator Hatch is also proposing an amendment which would change the law allowing people to convert traditional IRA's to Roth IRAs.

In addition to these changes, Senator Hatch is proposing an amendment that will allow parents to deduct private school tuition if their children attend a private religious school. 

The deduction would be limited to qualifying schools and reclassify the tuition payment as a charitable contribution.

 

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