The back and forth on tax reform continues.  There has been much speculation that the GOP tax bill would remove or reduce the amount individuals can defer in their 401k; however, President Trump squashed the idea. This morning, he tweeted “There will be NO change to your 401(k).  This has always been a great and popular middle class tax break that works, and it stay!” 

Some in the GOP have suggested reducing the tax-deductible deferral amount to $2,400, which is below the $5,500 that is currently allowed for Individual Retirement Accounts (IRA).  In 2018, the new contribution limits on an individual 401k account will increase to $18,500 from $18,000.  Those over 50 can contribute an additional $6,000 in what is commonly referred to as the catchup contribution (Those over 50 can contribute an extra $1,000 catchup in an IRA).

Currently, 401k plans cover 94 million Americans with assets over $7 trillion.  Between those that do not participate in their company plan and those that do not have plans at all, only 44% of employees actually participate.  According to a Vanguard report “How America Saves 2016” only about 12% reach their maximum allowed annual contribution.  

How much does this really cost?  The Treasury Department estimates that $69.4 million in revenue will be lost this year from 401k tax deferrals, and from 2018-2027, it will cost more than $1 billion.  The bottom line; however, is most Americans do not have nearly the amount saved they need to make it through their retirement.  Hopefully, Trump’s tweet will put to bed the dumb idea of limiting or reducing the 401k deferral amount.

The markets are relatively flat this afternoon ahead of a big earnings week.  The Dow is up, while NASDAQ and the S&P500 are trading in negative territory.  Of the 11 S&P sectors, 6 are in the red with industrial as today’s laggards and healthcare today’s best performer.  On the NYSE decliners led advancers 1645/1230 and 1690/1148 on the NASDAQ.

Let’s keep our powder dry.