Will catch-up contributions to your 401(k) be taxed in the future?


Savers breathed a collective sigh of relief when House Republicans left their retirement alone in the Tax Cuts and Jobs Act they introduced on November 2.

The fear was that the controversial bill, which promises a major overhaul of our nation’s tax code, would reduce 401(k) contribution limits to as low as $2,400. Fortunately, that never came to pass.

But that doesn’t mean were in calm waters when it comes to the future of how the tax code will shape your retirement.

The reality is there’s still a bull’s-eye on your money while the Washington wrangling continues. Now a key member of the Senate wants an amendment to the tax bill that is likely to impact older savers.

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This amendment could impact your retirement

As it stands right now, workers who are 50 or older can contribute an additional $6,000 to their 401(k). That’s $6,000 over and above the $18,000 limit in 2017 for a total of $24,000 that you can sock away if you’re 50+.

But Barron’s reports that if Senate Finance Committee chairman Orrin Hatch has his way, he wants to “Rothify” catch-up contributions for 401(k), 403(b) and 457(b) plans.

In plain English, that means any catch-up contributions made by older workers would lose their favorable pre-tax status. So you would be making those catch-up contributions with after-tax dollars.

That could be a real disincentive to make catch-up contributions for some people!

To soften the blow, Hatch’s proposed amendment also allows the catch-up contribution limit itself to be raised from $6,000 to $9,000 — a boost of 50%.


Of course, it’s anybody’s guess as to if this amendment will make it into the final version of the Senate’s tax bill.

And even if it does, it could be stricken when the House and Senate reconcile their two separate tax bills. Out of that reconciliation process would come one finalized bill that would be signed into law by President Trump.

This is likely to be a fast-moving story; President Trump has said he wants a bill on his desk to sign before Christmas.

We’ll be sure to keep you up to date with the latest developments that could impact your retirement!

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