One size does not fit all for retirement savers

For millions of Americans, a workplace retirement plan plays a pivotal role in their ability to save for the future. From small businesses to giant corporations, employers across the country offer 401(k)s to help their workers prepare for their later years.

So as Congress begins to consider tax reform, it is critically important that lawmakers not undermine the bedrock of our retirement system by taking away Americans’ retirement savings choices. 

{mosads}America’s retirement system is working for millions of middle-class families, and workplace retirement plans have proven to be the most effective means of helping families build financial security.

A workplace plan is especially important to workers earning $30,000 to $50,000 — 70 percent participate in a workplace retirement plan when one is offered, but only five percent open an IRA on their own. 

For hardworking Americans, tax incentives for retirement savings are a valuable tool for building retirement security. In fact, four out of five households say the incentives and favorable tax treatment of their retirement accounts encourage them to save.

Those tax incentives are working. Retirement savings amount to more than $26 trillion in the U.S. capital markets, giving businesses the capital they need to create more goods and services — and hire more workers. These savings not only benefit individual families, they benefit our entire economy.

Unfortunately, the quirks of congressional budget scoring dramatically overstate the real cost of the tax incentives for retirement savings.

As Congress searches for revenue sources to offset cuts in tax rates, some have proposed a one-size-fits-all retirement system that would eliminate the traditional, tax-deferred retirement accounts that workers and families depend upon and instead mandate the use of Roth after-tax accounts that reduce workers’ take-home pay by taxing their contributions.

This change could negatively affect retirement readiness for working families. American workers consistently choose traditional, tax-deferred accounts over Roth after-tax accounts.

Because Roth accounts reduce workers’ take-home pay by taxing their contributions, some workers with tight household budgets may reduce or even eliminate the amount they save for retirement if their only retirement option is a Roth account.

Moreover, eliminating choices to mandate Roth accounts could negatively impact whether employers, including many small business owners, decide to adopt and maintain retirement plans. Such a shift in savings and sponsorship decisions could put tomorrow’s seniors at risk.

Lawmakers should make decisions regarding America’s retirement system based on sound policy, not short-term budgetary goals. Unlike other tax incentives, retirement savings are tax-deferred, not tax-exempt. American families should be allowed to choose the retirement savings methods that work best for their financial circumstances, not be forced to play Washington’s accounting games.

The Save Our Savings Coalition, an alliance of advocates and businesses dedicated to protecting Americans’ retirement savings, has been working to urge Congress to preserve the tax incentives for retirement that give Americans choice for their retirement savings.

Working families deserve to decide what retirement savings vehicle works best for their needs. We hope lawmakers will take steps to protect, enhance and expand the system that’s helping millions of hardworking Americans save for retirement.

Former Rep. Jim McCrery (R-La.) is a partner with Capitol Counsel LLC, where he counsels clients on tax, trade, energy and health care issues. McCrery works with Save Our Savings.