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Why Republican Lawmakers Are Eyeing 401(k)s for Their Tax Plan

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Senate's Ron Johnson Opposes Tax Plan as Now Written

The debate over overhauling the tax code shows that while workplace retirement savings plans are widely popular, they aren’t untouchable. Republicans who control the U.S. Congress have floated proposed changes to 401(k) plans as part of their plan to cut taxes for individuals and corporations. Some $5.1 trillion sat in the plans as of June 30, 2017, in the accounts of 54 million Americans. Researchers estimate that 79 percent of Americans work at companies that offer 401(k)-style plans.

The 401(k), named for a piece of the Internal Revenue Code, lets workers divert a percentage of their salary -- as much as $18,000 this year, or $24,000 for those over age 50 seeking to "catch up" -- into a range of investments on a pretax basis, for use upon retirement. That means some otherwise taxable income, plus any earnings on that money, can go untaxed for decades, until a worker becomes a retiree and starts withdrawing it. That deprives the government of revenue that could be used now for new spending, deficit reduction -- or to offset lost revenue from tax cuts.