President Donald Trump has assured that the tax break for 401(k)s, a sort of retirement security contribution, would not change under the tax overhaul proposal he wants to get through Congress.
The 401(k) contributions are typically pre-tax, meaning that a taxpayer’s taxable income is reduced by the amount he/she puts into the 401(k) account. All contributions to qualified retirement plans such as 401(k)s reduce taxable income, which lowers the total taxes owed.
In practice, the 401(k) plan allows Americans to be able to reduce their take-home pay by making contributions to a pre-tax 401(k) plan, with high-earners taking advantage of pre-tax retirement savings,
The President tweeted on Monday that “there will be NO change to your 401(k). This has always been a great and popular middle class tax break that works, and it stays!.”
This fiscal stance is against the position of some Republicans who wanted a serious reduction in that tax break to help pay for all the tax cuts Trump’s been promising.
This is even as the GOP is also considering eliminating the deduction for state and local taxes, a development that’s not popular at all in high-tax states, like New York and California.
According to CNN report, the bottom line is that the Republicans are going to have a heck of a time doing this without ballooning the deficit.
The report indicated that Republicans had been discussing sharp reductions in the amount of money that could be invested tax-free in the popular retirement accounts.
Among those working on tax reform, the 401(k) deduction has been part of those discussions for months.
To offset deficit increases caused by tax cuts, some popular tax deductions will need to be eliminated. Reports indicate that the deduction for state and local taxes is among the most discussed issue in the current discussions.