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February 14, 2012 12:00 AM

Obama's budget bad for 401(k) incentives, ASPPA director says

Hazel Bradford
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    President Barack Obama's budget proposal to remove the tax incentive for families earning more than $250,000 to contribute to 401(k) plans “is a bad proposal based on bad math,” said Brian H. Graff, executive director and CEO of the American Society of Pension Professionals & Actuaries.

    One part of a package of tax increases proposed by Mr. Obama in his fiscal year 2013 budget unveiled Monday calls for limiting those retirement savings deductions, which the White House estimates would add $410 billion to federal revenues.

    “The tax break for retirement savings is a deferral, not a permanent write-off,” Mr. Graff said in a statement.

    In addition to losing a current tax break, higher income earners “would actually be penalized for saving — paying taxes now and taxes later,” Mr. Graff said, and also discourage small-business owners from setting up or keeping retirement savings plans for employees, he said, because the tax advantage of their 401(k) matching contributions would shrink as well.

    Current law has a $250,000 cap on compensation used to calculate contributions to 401(k) plans. The president's budget would limit the value of all deductions, including those for retirement contributions, to 28% of the contributed amount from 36%, for people in top brackets.

    “Penalizing small-business owners that make over $250,000 who contribute to 401(k) plans won't balance the budget, but it should and will make them think twice about putting in a plan to begin with,” Mr. Graff said.

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