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‘Roth-ification’ of DC Plans Not in Tax Reform Outline

A broad-brush outline of the GOP’s tax reform plan released today makes no specific mention of imposing a Roth-style requirement on 401k)s and other DC plans — but it does not rule out such an approach by lawmakers as tax reform proceeds either.

Similarly, the “Unified Framework for Fixing Our Broken Tax Code” document does not include any specific reference to the taxation of insurance companies or products. In fact, the only mention of retirement in the blueprint is a note pledging to retain incentives that encourage work, higher education and retirement savings.

The outline does include a proposal to cap the tax rate on small business “pass-through” income at 25% — an apparent technical glitch under which the owners of pass-through entities, including partnerships, S corps and small business LLCs, would be financially penalized for saving in a retirement plan. (For more on this proposal, read American Retirement Association General Counsel Craig Hoffman’s commentary here.)

The blueprint is designed to provide the broad contours of a reform package while allowing Congress to fill in most of the details, including offsets for the cost of the specified reforms. It indicates that the committees charged with developing tax reform legislation will work to modernize the rules governing the tax treatment of certain industries and sectors to ensure that the tax code better reflects economic reality and that such rules provide little opportunity for tax avoidance.

Click here to view the blueprint; we’ll follow up with more details about the plan soon.

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