A proposal to impose a “20/20 cap”—the lower of 20% of income or $20,000—on contributions to 401(k)s and other defined contribution plans is making rounds in Washington. Most Americans appreciate the need for Congress to pull out the stops to bridge the budget gap; but do we really want to discourage retirement savings as Social Security continues its inexorable slide toward insolvency?

The National Commission on Fiscal Responsibility and Reform—charged by President Obama with “identifying policies to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run”—is calling for the 20/20 cap to replace the current dollar limit imposed on contributions to most accounts. The Commission’s proposal would cap aggregate contributions to defined contribution plans to the lower of $20,000 or 20% of income—employer and employee contributions combined.

The proposal also would collapse all defined contribution plans into a single investment vehicle for all employers.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of 401(k)s in Advisor’s Journal, see The Department of Labor Releases Final 401(k) Disclosure Rules (CC 10-82).

For in-depth analysis of qualified plans, see Advisor’s Main Library: Qualified Retirement Plans.

Tags: 401(k), Employment, Pension, Social Security, TurboTax, United States, United States Congress, Washington

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