Cutting taxes to help stimulate the economy is high on President-elect Trump’s to-do list in 2017. His proposed reforms are expected to reduce taxes on personal income, capital gains, corporations and estates. According to the Tax Policy Center (TPC), the proposed cuts could reduce federal revenue by $9.5 trillion over its first decade. As the proposals come to fruition, the U.S. government will need to find new ways to make up for the expected losses of tax revenues. These new initiatives will have a lasting effect on how Americans save for retirement and the amount they will need to comfortably retire.
Making up for lost tax revenues
Historically, there are three ways to make up for tax shortfalls: The first option is to cut back on government spending, the second is to increase revenue by growing the economy, and lastly, eliminate or restructure pretax deductions – such as those found in current retirement savings plans. These plans will come under review as legislators look for new ways to decrease the impending tax deficit. Regulating contribution limits, moving away from pretax IRAs and 401(k)s, and creating hybrid retirement savings plans are all up for consideration.
Timeframe for the proposed reforms
When will all these proposed changes take place? The move to review current legislation and introduce new reforms will begin in February/March of 2017. The most-likely scenario to pass the necessary legislation would take us well into 2018.
While tax reforms are still in the early stages, it’s the perfect time to look at your retirement savings plan – would a well-managed 401(k) plan be a better choice than an IRA? Understanding the new tax reform policies and saving for retirement doesn’t have to be so much work. Check out CoPilot – a managed retirement savings service that does the work for you.
John Nahacky, JD, CPC - Compliance Manager - email@example.com - 800-236-7400 x3250
John is the subject matter expert on 401(k) rules, regulations, compliance, plan design, and year end requirements.