‘Mini-Rothification’ of 401(k)s Could Be Added to Tax Bill

New plan would require all catch-up contributions to be treated as Roth contributions

The tax bill will face a hard fight in the Senate, Greg Valliere says. The tax bill will face a hard fight in the Senate, Greg Valliere says.

Just as retirement planning officials were breathing a sigh of relief that neither the House nor the Senate tax bills included Rothification of 401(k) plans, the Senate Finance Committee chairman said Sunday night that he wants to amend the bill to require that all catch-up contributions be treated as Roth contributions.

Brian Graff, CEO of the American Retirement Association, a retirement industry trade group, calls the move “mini-Rothification.”

As a bit of a trade-off, the amendment, sponsored by Chairman Orrin Hatch, R-Utah, would increase the catch-up contribution limit from $6,000 to $9,000, Graff said.

Graff said that ARA is “working hard” to ensure that another provision to prohibit catch-up contributions for those earning $500,000 or more is eliminated from the Tax Cuts and Jobs Act.

Hatch's new "mini-Rothifcation" amendment, Graff added, "is a placeholder at this point in case they need revenue as the process unfolds. So we will see if it actually comes up."

After a long weekend of lobbying on Capitol Hill, Sen. Rob Portman, R-Ohio, offered an amendment “to strike the provision prohibiting catch-up contributions for small-business owners earning more than $500,000 and the provision practically eliminating most forms of nonqualified deferred compensation plans,” or NQDCs.

Graff said that ARA applauded Portman for his leadership on the amendment and that ARA “will be working hard to make sure this amendment passes.”

The Senate begins marking up its bill Monday.

The House Ways and Means Committee passed its tax bill Thursday.

Greg Valliere, chief global strategist for Horizon Investments, opined on Monday morning that Republicans have the votes to pass a tax bill on the House floor, “probably on Thursday or Friday,” but “potholes lie ahead in December.”

In the Senate, where Valliere says “passing anything is like herding cats,” the tax bill will be no exception.

“Of all the Senate differences with the House, the press has focused on the state and local tax, but the far bigger issue is a phase-in of the corporate tax cut; the Senate’s one-year delay is strongly opposed in the House (and in the markets),” he said.

The delay would lower the cost of the Senate bill by more than $100 billion.

Valliere adds that “these and other issues could bog down the [tax] bill in December,” when President Donald Trump “will be tempted to meddle. And lest we forget, an enormous budget battle looms in the first week of December, amid threats of a government shutdown as [Senate Democratic Leader] Chuck Schumer loads up the 2018 spending bill with his pet issues, such as immigration reform and aid to health insurers.”

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