Donald Trump

Yearly 401(k) Savings Could Be Cut Under New GOP Tax Plan

For the millions of Americans who stash away money for retirement through the government sponsored 401(k) plan, a new Republican tax proposal could reduce the amount they stockpile in that account.

House Republicans on Thursday passed a budget resolution, putting America one step closer to a huge tax reform plan, and among the significant changes proposed is altering the sole source of retirement savings for many working Americans.

Currently, most employers offer a 401(k) plan in which workers contribute to a savings account via a pre-tax payroll deduction. And in some cases employers match a percentage of employees' contributions to their account. The yearly maximum pre-tax amount allowed for each employee is $18,000, and it is set to increase next year to $18,500.

But among the items said to be on the table in the new budget plan is cutting that pre-tax maximum to $2,400.

Annette Nellen, a tax professor at San Jose State, said it's too big a cut, especially for young people.

"It's just not enough to be responsibly saving for what you would need," Nellen said of the proposed $2,400 limit.

On Monday, President Donald Trump tweeted that the 401(k) was safe. Republicans, however, say a cut may still be in the works.

Investors of all ages are concerned, saying it would hurt a lot of young people looking forward to retirement, especially considering pensions are a thing of the past.

"Retirement savings should be encouraged, particularly as people are giving longer, they need a lot more in their retirement savings," Nellen said.

Another tax proposal to watch, especially for Californians, is a plan to eliminate a deduction of state and local taxes from federal tax bills.

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