“One idea quietly being discussed would be taxing the money that workers place into their 401(k) savings plans up front.”
– Nancy Cook
“Revenue neutral” is a term that finds its way on social media and cable news shows as Washington attempts to construct policies addressing personal and corporate tax rates. Many party leaders, like Senate Majority Leader Mitch McConnell (R-KY), have said that any tax cuts must be offset by reductions in tax breaks/loopholes, thus “revenue neutral.” On the surface, this seems like something anyone who has put together a budget would instinctively do.
However, there is a current tax break that legislators are considering removing that would raise billions in revenue, but affects 5 trillion dollars worth of employees’ assets. Some in Washington would like to remove the pre-tax contributions to corporate 401(k) plans and tax that revenue at the time of contribution, not at the time of drawdown. The current, pre-tax deduction, 401(k) has been around since the 1978 Revenue Act, but we have seen that even 40 years of precedent is no guarantee that things will remain in place.
If you have questions about your qualified retirement plans, contact one of our specialists to make sure you are compliant and prepared for possible changes in public policy.