Congress might make saving for retirement harder — as if it weren't already tough enough

ByJames Dennin

Saving for retirement is already hard. But, alas, it might get a whole lot trickier.

Right now, to make it more attractive for you to save — and help everyday Americans' money go further — retirement savings vehicles come with tax advantages. If you contribute to your company 401(k), for instance, those contributions lower your overall taxable income, while your savings grow tax-deferred — which means they can compound faster.

But now, some of those tax savings might be on the chopping block. Friday morning, the Wall Street Journal's Jason Zweig reported Congress is considering revoking some of the tax benefits that come with retirement accounts as a way to make up revenue for other cuts. 

While it's just a proposal, there's good reason to be alarmed if you are among the Americans who benefit from the status quo. For example, a person making $50,000 a year and contributing 5% of their income to their 401(k) ends up lowering their annual tax bill by about $540, according to a pre-tax savings calculator. If that person saved 10% of their income, their tax bill would be reduced by more than $900 per year.

Though negotiations are reportedly still at their early stages, on Thursday Secretary of the Treasury Steven Mnuchin said that the administration was "pretty close" to bringing forward major tax reform. 

One awkward wrinkle in this story, as Zweig points out, is that members of Congress enjoy retirement benefits most Americans can only dream of: Congresspeople get both a 401(k) plan and a pension, something that's true for only 13% of Americans. Their retirement accounts get a generous 5% match, covered by taxpayers; and the fees on their retirement accounts are capped at 0.039%. Fees on plans in the private market can range up to 1% — or higher

Congress is considering the new policy because it would raise a lot of extra revenue to help fund the government: about $1.5 trillion over the next decade. It's one of several policy ideas that's been floated as a means to deliver on promised tax cuts without blowing up the deficit even more.

But the change would come at a time when young investors are already facing financial headwinds. Though millennials are outpacing predecessors with retirement savings, they're also likely to get lower stock market returns, meaning they'll have to save even more than their parents did to achieve similar results.

Student debt is a big burden as well: Fortune reported last year that more than a third of people with student debt aren't saving anything for retirement at all, and a recent New York Fed report suggests that student loans are weighing down rates of homeownership.

The best way to beat higher-taxes on your investment account? Focus on getting an early start, if you can, and watch your fees. 

Additionally, as you would diversify your investments by getting a mix of stocks and bonds, you should also use a mix of pre- and post-tax retirement accounts (learn the term "Roth"), so that regardless of what happens to our tax system in the future, you'll be in a position to be rewarded for all of your hard work.

Hopefully, anyway.

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