Savannah (WSAV) – Most Americans have less than a year’s salary set aside for their retirement savings. While many of us are encouraged to have a 401k plan – some say look out. That’s because the new Republican tax plan would drastically cut the tax benefits you can have, if you save quite a bit of money every year. It’s kind of a pay now instead of pay later approach, one critics say will just benefit only the wealthy and hurt average Americans.
Some on Capitol Hill made their opinions known today, the issue putting a limit on those “tax-free” 401k contributions.
Right now the tax benefit is up to $18,000 a year – that might be cut to just over $2,000.
Savannah financial planner Wayne Jordan says the higher tax free contributions have encouraged people to save and to try to catch up on their retirement.
“So catching up this would decrease your ability to catch up because you’re not getting that tax break so it’s not incentivizing to put as much in there you won’t get as much money back.”
It’s estimated the change on 401k plans could increase tax revenue the government gets now by more than $115,000,000,000 a year, which would offset income and corporate tax cuts the trump administration and republicans in congress say they want to pass.
Jordan tells us it may just be a different way of looking at your savings.
“What they are pushing is the roth.. to where you pay taxes now and then in retirement you pull it out tax free.”
He says going to a roth type plan has you pay now but then you don’t pay later.
“Now they’re trying to counter that with the roth and just saying oh you’re paying taxes at a different time so it’s not necessarily a bad change..”
Still, critics say it may be bad for millions of Americans who may not be able to afford to save as much because they don’t get the tax benefit.
“The American people know this bill benefits the rich and not the poor or the middle class,” says Senator Chuck Schumer,
It leaves everyone with questions about their money but some say it should not make you have questions about saving.
Jordan adds, “But that doesn’t change you still need to save it’s just you’re paying taxes at a different time.”