If you’ve listened to radio or watched TV in the last few months, you’ve heard the term “fiscal cliff” bandied about. The fiscal cliff the politicians and pundits are describing is the expiration of a number of tax cuts at the end of this year. If Congress does nothing to extend some or all of the tax breaks, the tax rates for both corporations and individuals (at all income levels) will increase, in some cases, dramatically.
Congress has begun working on tax reform to address the upcoming fiscal cliff. All tax deductions and tax credits are on the table for consideration for reduction or elimination, including your tax-deductible salary deferral to your 401(k) plan. Proposals are already being considered by Congress today to cut the 401(k) contribution limit.
The 401(k) plan has become the main vehicle to save for retirement for the majority of Americans. Over 60 million of us participate in a 401(k) plan. If Congress reduces the salary deferral limit, or chooses to tax salary deferrals, many employees will reduce or eliminate the amount they contribute to their 401(k) plan. Employers will be less likely to make employer contributions to 401(k) plans because of the reduced tax incentive to business owners. If this happens, a great many of us will need to delay retirement, since social security alone will not provide enough for us to live on.
ASPPA (American Society of Pension Professionals & Actuaries) has set up a web site to provide contact information for your elected officials. From this web site, you may send an automated e-mail to your congressmen, or show your support via Facebook, Twitter, or YouTube. If you want to tell your elected congressmen to leave alone the 401(k) plan contribution and deduction limits, click on this link: http://www.savemy401k.com/. The link will take you to a web site that will identify and provide contact information for your governor, senator and representative based on your zip code. You may e-mail your elected official an automated e-mail requesting protection for 401(k) plans, or you may compose your own e-mail.