FPA Slams GOP’s 401(k) Catch-Up Amendment
The Financial Planning Association says a current Senate amendment to the Republican tax bill could make it more difficult for older Americans to save enough for retirement by limiting their ability to make so-called “catch-up” contributions to 401(k) plans.
On Monday, Senate Finance Committee Chair Orrin Hatch, R-Utah, filed an amendment to the current GOP tax overhaul bill raising the additional amount workers over 50 can contribute to their retirement plans from $6,000 to $9,000, CNBC writes. But there’s a catch: currently those over 50 can contribute an extra $6,000 on top of the $18,000 annual limit to their 401(k) plans, funding which occurs on a pretax basis, according to the news website. Under Hatch’s amendment the additional $9,000 could only go toward Roth individual retirement accounts, where contributions are taxed upfront, CNBC writes. That could hurt workers in higher tax brackets projected to earn significantly less in retirement, according to the news website.
“It is disheartening to see the attempt by [Hatch] to eliminate the ability of older Americans to make pre-tax contributions to defined contribution plans,” the FPA says in a statement. “These critical retirement plans make it possible for millions of Americans to save for their eventual transition out of the workforce and into retirement. Eliminating the contributions on a pre-tax basis for those savers age 50 and older will greatly hinder their ability to save.”
As of June 30, retirement savers had $7.5 trillion in defined contribution plans, according to Investment Company Institute figures cited by CNBC. By contrast, Roth IRAs only held $660 billion as of the end of 2016, according to ICI’s date cited by the news website.