Some Good News — and Some Unwelcome Surprises — in Tax Reform Proposals
While tax reform is still very much a work in progress, there was a lot of good news for retirement plans and retirement savers yesterday. But there were also a couple of unwelcome surprises, particularly for 403(b) and 457(b) plans.
While there had been concerns that Rothification might surface in the Senate’s proposal, the much-anticipated Senate GOP tax proposal unveiled yesterday left 401(k)s and IRAs alone. At least that’s the interpretation of language contained in a policy highlights document
that says the proposal “continues popular retirement savings programs such as 401(k)s and Individual Retirement Accounts, to help Americans build their retirement nest eggs and prepare for the future.”
There was even better news — certainly for those who sponsor and/or work with nonqualified deferred compensation plans – from the House Ways & Means Committee, which passed an updated version of its proposal (along party lines) that unwound a provision that could have done major damage to deferred compensation plans. A summary of the Chairman’s Amendment #2 reads simply: “Section 3801 — Nonqualified deferred compensation. The amendment strikes Section 3801 so that the current-law tax treatment of nonqualified deferred compensation is preserved.”
However, in the Senate, the Chairman’s Mark unveiled by Sen. Orrin Hatch (R-Utah) throws a few unexpected curves — starting with incorporating the same provision that dramatically limited nonqualified deferred compensation that the version that emerged from the House Ways & Means Committee had removed. For more on this, as well as a proposal to cap catch-up contributions and some takeaways for 403(b) and 457(b) plans — click here.