What was all that hubbub about President Trump wanting to kill your ability to deduct your 401(k) retirement account contributions? Any such proposal would slash your incentive to contribute to your 401(k) account – making it harder for you to save for retirement, maybe prompting you not to contribute as much, leading to a smaller retirement nest egg.
So why did that news story explode into the headlines – then disappear? Here’s why: It was a mistake by some news outlets, a misunderstanding. At least that’s all it is for now.
On April 26, White House officials outlined Trump’s tax plan. A single-page summary said the plan would eliminate the vast majority of tax deductions, leaving intact a few exceptions such as charitable contributions.
The next day, at the daily White House press briefing, a reporter asked if the deduction for contributions to 401(k) accounts would be among the many deductions axed by the president’s plan. Press Secretary Sean Spicer said the plan would preserve mortgage deductions and charitable gifts and “that’s it.”
And that’s what triggered the headlines about the demise of 401(k) deductions. Spicer clarified later that day that the plan would not eliminate the deduction for retirement plan contributions. But it took awhile for that clarification to spread.
But who knows what will happen to the popular deduction once Trump presents a detailed tax proposal to Congress. “There’s always a danger that it could come into play as part of a compromise or negotiation between the White House and Congress,” Rick Meigs, president of 401khelpcenter.com, told IBD.
Katrina Hooper, global market strategist for Invesco ‘s ( IVZ ) PowerShares line, told IBD that she expects the deduction to be left intact by the time a tax reform package is passed by Congress and signed into law. “The American people need to be incentivized to save for retirement, and without the deduction we will see a reduction in contributions,” she said. “That would not be in the U.S.’ interest.”
But Hooper also said it’s impossible to predict the outcome once Congress starts to ponder details of tax reform and once special-interest lobbyists fight to preserve a wide array of tax rules and deductions.
“A lot of details will emerge through the negotiation and bargaining process that is bound to happen,” Hooper said. “The ultimate outcome will be a detailed plan that is much more of a compromise. There will have to be a lot of give-and-take among a lot of people with different viewpoints – congressmen, Republicans, Democrats.”
But for now, the deduction stays.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.