Fortunately, the late 2017 passage of the Tax Cuts and Jobs Act did not yield any reductions in tax-advantaged contribution limits on qualified retirement plans — although there were debates and proposals to that effect. However, there were minor changes that could be advantageous for investors and worth considering when creating a strategic retirement plan.
Widespread tax cuts generally result in a marked decline in government revenues and/or cutbacks in services or other areas. One area Congress considered cutting back was the amount of tax-deferred contributions that workers could make to employer-sponsored retirement plans. One proposal recommended scaling back contributions from the current limit of $18,000 a year to as little as $2,400.1
As one recent survey confirmed, it is likely that Americans would save even less for retirement than current levels if not for the tax-deferred status of their 401(k) plan contributions.2 Indeed, proposals that discourage retirement savings are probably not in the best interest of Americans or the government itself — which would inevitably bear the burden of providing more Social Security benefits for those who do not save enough.
With that being said, there are several ways in which the new tax legislation could impact retirement plans moving forward.
“The Wells Fargo/Gallup Investor and Retirement Optimism Index found nearly half of U.S. investors would save less or stop saving if the tax-deferred status of their 401(k) plans was removed.” 3 [Read more…]