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EBRI: Cap on tax-preferred 401(k) contributions hurts retirement savings

Proposed tax reform for 401(k)-type retirement plans would cause the greatest reduction in retirement savings for both the highest- and lowest-income workers, according to new analysis from the Employee Benefit Research Institute.

By Jenny Ivy | Updated on July 12, 2011

Proposed tax reform for 401(k)-type retirement plans would cause the greatest reduction in retirement savings for both the highest- and lowest-income workers, according to new analysis from the Employee Benefit Research Institute.

EBRI finds the National Commission on Fiscal Responsibility and Reform’s recommendation to cap the annual tax preferred contributions to (the) lower of $20,000 or 20 percent of income” for 401(k)-type plans (known as the “20/20 cap) starting in 2012 would most affect the highest-income workers—not surprising, since those with high income tend to save the most in these kinds of retirement plans. However, EBRI also found the cap would cause a big reduction in retirement savings by the lowest-income workers as well.

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