Tax plan's proposals on 401(k)s awaited; Arkansas delegation reluctant to guess

WASHINGTON -- When Republicans unveil their tax overhaul legislation as early as today, investment advisers and retirement planners will be watching carefully for any proposed changes to the 401(k) program.

Americans have more than $5 trillion invested in the tax-deferred accounts, which have gained in popularity as businesses have increasingly phased out traditional pension plans.

Nationwide, roughly 55 million people participate in the plans, according to the Investment Company Institute, an industry trade association.

Some Republicans have suggested lowering the maximum pretax contribution limits. President Donald Trump tweeted on Oct. 23 "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!"

But others, including House Ways and Means Committee Chairman Kevin Brady, R-Texas, are declining to rule out significant changes to the retirement program.

U.S. Rep. Bruce Westerman, R-Ark., predicted lawmakers would be loathe to rein in the popular savings plan.

"I think the 401(k) program's a big asset and benefit to a lot of people," he said. "I think there'll be a tremendous amount of push-back if there's cuts or changes that are tried to be made involving the 401(k) program."

Under the current system, participants can place up to $18,000 of their pretax earnings into 401(k) accounts. Workers ages 50 and older can withhold even more -- up to $24,000.

The money will eventually be taxed -- once it is withdrawn -- years or even decades from now. Sharply lowering the caps on pretax withholdings would increase tax revenue in the short term, supporters say, generating funds that can be used to offset tax cuts elsewhere.

David Ashby, co-founder of Mustard Seed Wealth Management in Magnolia, said 401(k) plans are "the bread-and-butter savings vehicle of American industry."

An initial trial balloon, calling for dropping the pretax cap from $18,000 to $2,400, was cause for concern, said Ashby, a finance professor emeritus at Southern Arkansas University.

"That was too severe of an adjustment and was a bad idea," he said. "If you want to drop it from $18,000 to $15,000 or to $12,000, that's fine. The fact is most Americans don't [save] the maximum ... because they can't afford to."

Richard LeCompte, chairman of the finance department at Wichita State University, called 401(k) accounts "one of the most important vehicles for middle-income families to accumulate retirement savings."

Asked why it's a good idea to lower the caps on pretax 401(k) contributions, the University of Arkansas, Fayetteville, alumnus said: "You'd have to ask the politicians in Washington, D.C., who have their own pension. I don't see any upside."

Tuesday, Democrats on Capitol Hill called for raising the caps on tax-deferred 401(k) contributions to $24,500 for most Americans. Under the Democratic plan, annual caps for those 50 and older would rise to $30,500.

In recent days, some members of the Arkansas delegation were reluctant to discuss hypothetical changes.

"I want to see the full package," said U.S. Rep. French Hill, a Republican from Little Rock who is a former banker.

Whatever it is, it should be "pro-savings and pro-investments," he said. "I'd like it to be pro-growth for the economy."

U.S. Sen. John Boozman said it would be good to review the actual proposal.

"Certainly, 401(k) deductions are popular, but right now, it's valuable to have all options on the table," the Republican from Rogers said. "At the end of the day, what we want to end up with is a package that results in significant tax reductions for hardworking Arkansans, simplifies the process and allows our businesses, especially small businesses, to be more competitive in today's global economy."

A spokesman for the Democratic Party of Arkansas did not respond Tuesday afternoon to a request for comment.

Spokesmen for U.S. Sen. Tom Cotton, U.S. Reps. Steve Womack and Rick Crawford said the lawmakers would comment on the legislation once it has been released.

A Section on 11/01/2017

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