Fears of drastic changes to retirement savings tax advantages during the recent tax reform deal failed to materialize, thanks to the efforts of an unusual coalition, old-fashioned lobbying and a presidential tweet.
The allure of reducing the tax preferences for pretax retirement savings plans to raise federal revenue is nothing new. Ideas have been floated by Republicans and Democrats alike whenever money is needed to pay for tax cuts, federal spending and debt demands, and other fiscal crises.
But for many Washington observers, those tax advantages came closer than ever to real peril in 2017, which saw the biggest push for tax reform in more than 30 years along with the biggest price tag: more than $1.5 trillion in tax cuts and projected lost revenue that had to be offset.
Panic started to spread among retirement plan executives and service providers when White House and Republican tax negotiators in Congress refused to rule out the idea of "Rothification," a dramatic shift to post-tax Roth accounts from pre-tax savings preferences for traditional 401(k) accounts.
As tax-negotiating committees started to work on legislation, other ideas cropped up. One cause for alarm was a Senate proposal to prohibit individuals earning $500,000 or more annually from making catch-up contributions. That sparked memories of proposals from Barack Obama's administration to means-test retirement plans and impose lower contribution caps to shift the benefit more toward the middle class.
Another rumored change was capping pre-tax contribution levels to as little as $2,400, down from current annual caps of $18,000, or $24,000 for those older than 50. That idea, said one lobbyist who asked not to be identified, "was a tactical decision that backfired" and instead galvanized opposition to any retirement-related changes.
The gravity of what was at stake led to formation of the Save Our Savings Coalition, a combination of former go-it-alone trade groups, financial services firms, plan sponsor organizations and even the AARP, represented — or more accurately, herded — by Groom Law Group, which started strategizing when President Donald Trump brought his tax-cut mantra to Washington.