WSJ: There’s talk of capping 401(k) contributions at $2,400 per year .....

[Trudie]

Given that we're 3-5 years from FIRE such a decision will affect us, most distinctly in the first year when our tax obligations are way up, but then will level off.  Our window is pretty small at this point.  We'll be okay as long as we can contribute to Roths and as long as they don't limit the amount we can contribute to some unreasonably small number.

BUT, as the person who administers my company's 401K plan I think it will be a disaster in getting younger people to start contributing toward their retirement.  The "front loaded" tax advantages are one of the few carrots for encouraging young people to start early, and even at that many still don't do it.  We still have hold outs who don't contribute enough to get the company match.  It's always a challenge getting people to look far into the future and sacrifice today for a long-term, somewhat "fuzzy goal."  But when they get zero tax benefits in the present, I think the effect on savings behavior will be stunning. 

I guess it's one way to keep people working until they die, forgoing their Social Security payments as long as possible, staying on employer-provided health insurance instead of Medicare, and basically not becoming a "burden."

I called my legislators...

[eyePod]

It seems more and more likely that they will reduce pre-tax 401(k) limits, but not as drastically as down to $2,400. 

Don't forget that if you have an HSA, those contributions are also pre-tax as of now, up to, I believe, what you contribute less employer seed money if you get any.  I've had an HSA for the last 2-3 years and max it out.  My tax free contributions are $2800, and my employer gives me a yearly seed of $600, for a total of $3400 added to my HSA account yearly.

I don't have an HSA. I wish I did.

I guess I'm trying to understand this - is it supposed to decrease the taxes on my income but also decrease my allowance for the pre-tax contributions which reduce my taxable income? I'm trying hard to see the benefit overall here. I guess it's all smoke until we see something concrete. Whatever the house has is going to suck and won't be the same thing as what the Senate puts forward since they're working on their version in parallel.

[alex753]

I don't have an HSA. I wish I did.

I guess I'm trying to understand this - is it supposed to decrease the taxes on my income but also decrease my allowance for the pre-tax contributions which reduce my taxable income? I'm trying hard to see the benefit overall here. I guess it's all smoke until we see something concrete. Whatever the house has is going to suck and won't be the same thing as what the Senate puts forward since they're working on their version in parallel.

Right now it's difficult to see what the net tax effect will be.  Gotta wait till it's finalized to see how each individual tax situation unfolds.  But yes, they are mixing it up with policies that both increase and decrease your taxable income.   

[eyePod]

I don't have an HSA. I wish I did.

I guess I'm trying to understand this - is it supposed to decrease the taxes on my income but also decrease my allowance for the pre-tax contributions which reduce my taxable income? I'm trying hard to see the benefit overall here. I guess it's all smoke until we see something concrete. Whatever the house has is going to suck and won't be the same thing as what the Senate puts forward since they're working on their version in parallel.

Right now it's difficult to see what the net tax effect will be.  Gotta wait till it's finalized to see how each individual tax situation unfolds.  But yes, they are mixing it up with policies that both increase and decrease your taxable income.

I wonder about the benefits of transitioning from pre-tax to post tax. I always liked the idea of reducing my taxable income now when I'm earning a lot and then taking it out when I could manage my income in the future. Definitely losing that if we go to a lower pre-tax contributions.

[CorpRaider]

Any decision to cap 401k contributions will surely result in more revenue in the short term

  That's perhaps the most rage inspiring thing.  Forcing the use of Roth accounts is complete accounting boooshit to manipulate the projected impact on deficits during the time window; under the guise of tax "reform." 

I suppose the rates could drop enough to a situation where I would prefer Roth in any case.  Given that I'm an upper middle income household member, however, I doubt the rates will move much.  They haven't passed anything else, even if they have been raving about it for nearly a decade, so I won't get to bent out of shape yet.

[CorpRaider]

Per WSJ this morning:

"But the plan being released Thursday morning stops short of touching other popular tax breaks that were being considered for change, such as the ability of individuals to park up to $18,000 a year in pretax funds into 401(k) savings accounts."

[HPstache]

Per WSJ this morning:

"But the plan being released Thursday morning stops short of touching other popular tax breaks that were being considered for change, such as the ability of individuals to park up to $18,000 a year in pretax funds into 401(k) savings accounts."

Surprise!

[Paul der Krake]

We did it, swamp!

[eyePod]

It's still going to be murky as hell. Crazy when you think about the large scale impact and the potential of toppling this house of cards. http://www.taxpolicycenter.org/taxvox/why-tax-reform-flounders-case-doubling-standard-deduction

[DavidAnnArbor]

great article