House Republicans released a tax reform plan on Friday that calls for exploring new ways to spur retirement and other types of savings.
The Republican Tax Reform Task Force report also recommends a “simpler, fairer and flatter” tax code overall, by lowering the corporate rate to 20%, having only three individual rates that would be capped at 33%, and limiting investment income, including capital gains, dividends, and interest income, to a top tax rate of 16.5%.
On retirement savings, the report notes that people contributing to individual retirement accounts are subject to a variety of rules on contribution limits and income phase-outs, while those participating in 401(k) or other employer-based retirement plans also are subject to contribution limits.
As a way to address what it characterized as double taxation of savings and investment, the report said the Committee on Ways and Means will explore universal savings accounts or other general savings vehicles, “using as a model the retirement accounts that have proven so successful.” Such accounts would let individuals contribute and withdraw without penalty and control the investment decisions, the report said.
Promising to continue the current tax incentives, the report said the Committee on Ways and Means “will work to consolidate and reform the multiple different retirement savings provisions in the current tax code to provide effective and efficient incentives for savings and investment.”
Committee members won't get into the details until later this year or even 2017, but some plan sponsor advocates are on alert, particularly in the congressional search for new tax revenues.
“We have some strong concern that they might reduce the tax incentives for retirement savings,” said Will Hansen, senior vice president of retirement policy for The ERISA Industry Committee. Employers need to retain the flexibility to tailor retirement plans to their workforce, he said.