The details of the GOP plan haven't been released yet, but The New York Times reported that Republicans are talking about cutting the annual, tax-deferred contribution
from the current $18,000 per year for people under 50 ($24,000 for people 50 or older) to a measly $2,000 a year.
1) Tax-deferred contribution
levels are significantly higher than the $5,000 (in 2009) limit for traditional and Roth IRAs (see Chapter 6).
GOP lawmakers have been considering changes to the 401(k) structure, such as limiting the amount of tax-deferred contributions
employees can make, as a way to help finance tax cuts.
Without this safe harbor, low plan participation among middleand lower-income workers might limit allowable tax-deferred contributions
from key employees of the sponsoring company, including the business owner or owners.
(federal and state income tax, where applicable),
Catch-up contributions are additional tax-deferred contributions
and are separate from regular TSP contributions.
A solo or self-employed 401(k) combines a profit-sharing plan with a 401(k) plan and allows a sole owner-employee to make greater tax-deferred contributions
than would be permitted under the others.
Fortunately, a 401(k) look-alike plan allows executives to overcome this discrimination by permitting tax-deferred contributions
to a nonqualified retirement plan.
Most Americans are now familiar with 401(k) plans epitomized by employee tax-deferred contributions
(often with a company match).