Fight Expected Over Possible 401(k) Changes

Oct. 26--Of all the proposals being floated as part of the Republicans' planned tax overhaul, one in particular has the potential to grab the public's attention.

Lawmakers are looking at whether to limit the amount people can contribute pre-tax to their 401(k) accounts -- a change critics say would discourage people from saving for retirement.

The New York Times reported the plan could limit pre-tax contributions to $2,400 annually, down from the current maximum of $18,000 or $24,000 for those 50 years or older.

The 401(k) accounts are used by millions of Americans, though only about a third of the country saves for retirement through a 401(k) or other retirement account through an employer.

The 401(k) changes are just one of the ways suggested for how the GOP could pay for its sweeping plan to reform the tax code for corporations and individuals. In order to keep the support of deficit hawks within the party, Republicans must find offsets to pay for the tax cuts or risk having the plan send the deficit higher.

The suggested rule changes would have people pay taxes now on their retirement savings rather than later.

Vince Russell, director of Dayton market for Johnson Investment Counsel, said the changes would discourage savings.

"The idea of a 401(k) deferral is to encourage savings," he said. "The notion of reducing it from [$18,000] to anything ... you'll almost be suggesting savings isn't that important."

Russell, however, said he doesn't see the proposal going through, noting opposition from within the financial industry.

Barry James, president and CEO of James Investment Research near Xenia, said he expects that the industries that service 401(k)s will organize to fight any potential changes.

"There are a lot of people who make a lot of money on 401(k)s," he said. "You know their lobbyists are going full speed."

By the numbers

$5 trillion: Total amount Americans have saved in 401(k) accounts.

$18,000: Current pre-tax contribution limit for most workers

$2,400: Reported pre-tax contribution limit being considered

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