I PREDICT THAT CONGRESS WON’T ELIMINATE PRE-TAX RETIREMENT PLAN CONTRIBUTIONS, EVEN THOUGH AN AFTER-TAX OPTION ALREADY EXISTS
At least one source has suggested that Congress is considering eliminating the ability to make pre-tax contributions to 401(k) retirement savings plans. At least one commentator has said that’s a bad idea. I agree that it’s a bad idea. I predict that the idea, if it is actually being considered, will go nowhere, as did the idea to tax withdrawals from college savings accounts.
Neither of the discussions linked above mentions, however, that taxpayers currently can choose to make after-tax contributions to employer-sponsored retirement savings plans, if their employer offers the option. It’s called the Roth 401(k). It’s the same idea as the Roth IRA. The employee is trading the ability to make contributions on a pre-tax basis (401(k), conventional IRA) for the ability to withdraw earnings tax-free (Roth 401(k), Roth IRA).
Does the Roth 401(k) produce a better net return than the conventional 401(k)? I don’t know. It probably depends on the individual taxpayer’s circumstances. I do know, however, that eliminating the ability to elect to contribute to a 401(k) plan on a pre-tax basis will be unpopular.
I was under the impression that individuals not saving enough for retirement is a big problem. Is Congress really going to take away what is probably the largest tax benefit currently offered for retirement savings? I doubt it.
The contents of this blog, this web site, and any writings by me that are linked here, are all my personal commentary. None of it is intended to be legal advice for your situation.