The House Ways and Means Committee unveiled Thursday its sweeping tax legislation, the Tax Cuts and Jobs Act, which, despite rumors to the contrary, retains the current tax advantaged status of 401(k)s.
In releasing the tax bill, House Ways and Means Committee Chairman Kevin Brady, R-Texas, said the package “marks the beginning of the end of our nation’s broken tax code,” as the bill will deliver “real tax relief to Americans across the country — especially low- and middle-income Americans who have been struggling for far too long to earn a raise and get ahead.”
While retirement savings provisions look to be unaltered, the legislation eliminates the provision that allows recharacterization of traditional and Roth IRA contributions, Nicole Kaeding, an economist at the Tax Foundation in Washington, told ThinkAdvisor in a Thursday interview. “For instance, when an individual contributing to a Roth or traditional IRA had a spike in their income during the year, they could recharacterize the contribution to either a Roth or traditional IRA. That has been eliminated” under the GOP bill.
With retirement savings plans largely intact, “that’s good news overall for savers, although with lower marginal tax rates for most taxpayers, the current tax benefit of those savings has been reduced,” said Baird Director of Advanced Planning Tim Steffen. “This makes Roth-style plans marginally more attractive.”
Dale Brown, president and CEO of the Financial Services Institute, stated that FSI is “very encouraged that this draft protects the tax incentives for retirement accounts.”
The GOP tax bill eliminates the individual as well as the corporate Alternative Minimum Tax, which Brady says “punishes hardworking families.”
The bill also doubles the exemption for the estate tax and repeals it after six years. “Family-owned farms and businesses will no longer have to worry about double or triple taxation from Washington when they pass down their life’s work to the next generation,” Brady said.
The estate tax provisions are “likely to be lost during the final negotiations,” opined Steffen. “Estate taxes are viewed as a tax only on the rich, and that’s not exactly a sympathetic group. It’s hard to see that one lasting.”
Tax Foundation analysts noted that changes are likely in committee markup, which Brady has said will start Monday, and the Senate “will certainly bring its own priorities to the process.”
Indeed, Steffen added that the GOP bill is “a long way from complete, and we could see many changes, from small tweaks to large rewrites, in the coming weeks.”