What’s At Risk

Whichever retirement savings vehicle you use, you benefit from special tax advantages for your retirement savings. In most cases, this is the ability to make contributions to your retirement account now and not pay income tax on those contributions until you withdraw the funds during retirement.

However, today there are a number of proposals in Washington D.C., both on and off Capitol Hill, which could change the tax treatment of your retirement savings.  While the impetus behind these proposals is to bring more money into the government, we don’t believe your retirement should be the vehicle for deficit reduction. Especially considering that all your planning has been based on the ground rules in place today.

If you agree, be sure to tell Congress that you need these tax incentives in order to save for your retirement by using the Take Action tab.

Proposals range from taxing all of your retirement savings contributions to placing your retirement under the direct control of the federal or state governments, sometimes called “Social Security Plus.” Several examples of current proposals are shown in greater detail below.

 

Types of Proposals Currently Considered in Congress

 

Proposal: Eliminate tax-deferred contributions 

The downside: It’s harder to grow a retirement account when contributions are taxed. Any money that is put into retirement savings will necessarily be less because of the amount deducted for taxes. In addition, employers will be less likely to offer matching contributions. In short, both employees and employers would be less likely to contribute to a voluntary retirement plan if those contributions were taxed.

What should be done: Leave in place the current system of taxing retirement savings only when they are withdrawn.

 

Proposal: Lower the cap on tax-deferred contributions

The downside: It’s harder to reach the amount needed for a comfortable retirement when tax-deferred contributions are limited by law.

What should be done: Keep contribution limits high, encouraging maximum savings and helping individuals create a larger retirement nest egg, faster.

 

Proposal: Offer fewer options for retirement savings.

The downside: This would mean eliminating some of the variety consumers enjoy in today’s retirement choices. Restricting choice in retirement vehicles means some consumers will have to switch to less effective—for them—means of saving. One size does not fit all.

What should be done: Preserve the choices in retirement that grew organically to meet consumer needs. 

 

Take a more in-depth look at proposed changes