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Roth Plans May Be a Target of Congressional Taxwriters Again

After Day 2 of the 2013 NAPA/ASPPA 401(k) Summit, several themes have emerged in the presentations and off-the-cuff remarks by the conference’s featured speakers, especially on the topic of tax reform. One of these themes was sounded loud and clear by ERISA attorney David Levine of the Groom Law Group: Congress is looking for tax revenue to help resolve the budget deficit, and they’re going to come after 401(k) plans.

More specifically, says Levine, the likeliest target is Roth 401(k)s –again. “Congress needs revenue ... to them, Roth plans are like a drug,” Levine told a packed general session yesterday. “Yes, they just used Roth plans to generate revenue [in the fiscal cliff deal], and they could do it again,” he said. Changing the tax treatment of Roth 401(k)s to generate more revenue may help solve a problem today, Levine noted, but as a result, revenue may not be available 20 years from now.

Marcia Wagner of The Wagner Law Group and Fred Reish of Drinker Biddle joined Levine in Monday’s Legal Roundtable, moderated by Sarah Simoneaux of Simoneaux & Stroud.

Addressing the possible impact of tax reform on 401(k) plans, Wagner outlined the various deferral, compensation and other limitations applicable to 401(k)s and other forms of DC plans, reminding attendees of the drastic cuts enacted in TRA ’86, DEFRA and TEFRA.

Reish offered a couple of suggestions for advisors if the tax reform axe does fall on the industry once again. “For small firms, look at adding DB or cash balance plans. For large plans, think about adding non-qualified deferred comp plans,” Reish suggested, as a way to soften the blow if it comes.

Monday’s legal update touched on many other topics. Look for more posts on those topics in the days ahead.

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