Tax Reform Proposals Target 401(k) Plans

By Stacey L. Spencer, QKA and Tim Ayler, CPA | Team Members of the Employee Benefit Services Group

On June 27, 2013 Chairman Max Baucus and Ranking Member Orrin Hatch U.S. Senate Committee on Finance wrote an open letter to their colleagues in the Senate regarding tax reform. In this letter, they propose a “blank slate” approach, meaning tax reform should start from a tax code without all of the special provisions in the form of exclusions, deductions and credits and other preferences that some refer to as “tax expenditures”. The Senators acknowledge that some tax incentives should be preserved and have requested input from their colleagues regarding which ones and also ask that they provide evidence that the particular provision will help grow the economy, make the tax code fairer, or effectively promote other important policy objectives.

The last major reform of the tax code was the Tax Reform Act of 1986. Following those changes employees’ 401(k) plans were cut by 70%, resulting in a mass termination of plans, according to Brian Graff ASPPA‘s Executive Director and Chief Executive Officer. The annual 401(k) deferral contribution went from $30,000 to just $7,000. Although it has been increased over the years for Cost of Living Adjustments and inflation, the deferral contribution for 2013 is only $17,500.

Every dollar of retirement savings excluded from income today will be included as income when it is paid out in retirement. Eliminating the tax deferred savings would destroy the retirement security of many working Americans. Over 60 million American workers are covered by a 401(k) plan, or similar plans. Approximately 80% of 401(k) participants come from households making less than $100,000 in income.

We are urging members of the public, especially business owners, to contact members of Congress by visiting http://savemy401k.com/ and urge elected officials to preserve the retirement savings tax incentives offered by 401(k) plans.

Contact Information:

Stacey L. Spencer, QKA | Manager, Employee Benefit Services | 317-260-4421 | sspencer@greenwaltcpas.com

Tim Ayler, CPA | Partner | 317-260-4401 | tayler@greenwaltcpas.com