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Tax Reform and Retirement Savings
I wanted to start a dialogue around the tax reform bill that is pending and the impact on the usuage of the 401k within businesses as the single biggest savings vehicle for Americans. The proposed bill as is stands is reflecting a possible reduction to the 402(g) limit which is currently set at $18,000 per individual for those under age 50 and $24,000 for those over age 50.  The bill would lower the limit to $2,400 per individual. I am sure that the first thing that would come to mind is that most Americans don’t save anywhere close to the limit so it shouldn’t matter.  Well, the business owners who have chosen to pay to have 401k’s added as a benefit normally choose to maximize their retirement savings through the deferral feature. Again, I assume that some would say that it doesn’t matter if business owners are allowed to save because they are the “rich” people. Well, why does this matter you ask?  In order for a business owner to put the maximum amount of deferral in the 401k would normally employ “Safe Harbor” provisions which allows them to defer the max without regard to employees deferring their own money. In order to do that and get the free pass, the business owner agrees to two main concessions for Safe Harbor; no vesting schedule and a mandatory contribution to participants either in the form of an elective match formula at 4% of pay on amount deferred upto 5% of pay or a 3% non elective contribution. Many times the employer will also make a profit sharing contribution to every eligible equal to another 2% of pay or greater. The participants in these cases are receiving retirement dollars they otherwise wouldn’t have and the owner is allowed to defer the max allowed. Here is the problem with a low limit like proposed; if you take away the savings and tax incentives for the business owner community, you take away the ability for any chance of a positive outcome based Retirement story for the participants. Business owners will not continue to pay for and sponsor 401k plans if there is no incentive for them. We need to be VERY careful when any decision is made to reduce 401k limits as it will have a negative outcome for all Americans. 
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