How will President-elect Donald Trump’s policies impact – both positive and negative – the nation’s retirement readiness?
“Regardless of changes in administration, the need for retirement solutions that work for all businesses and employees remains constant …,” said Laurie Rowley, CEO, Icon. “That said, policies aimed at equalizing 401(k) and IRA annual contribution limits would be a significant step forward in expanding retirement savings opportunities. By setting equal limits across retirement accounts, all individuals could benefit from a level playing field, enhancing retirement readiness for those without access to a 401(k).”
We asked industry experts to weigh in on what lies ahead for plan sponsors and employees, when it comes to closing the $4 trillion retirement savings gap.
Portable retirement plans
Rowley is hopeful that the new administration will be beneficial to portable retirement plans (PRPs), like Icon’s PRP, to usher in “a new era in which retirement plans are flexible, mobile, and accessible for both employees and employers,” she said. The PRP is specifically designed to target small businesses and gig workers—the 81 million Americans lacking access to employer-sponsored retirement plans.
“The PRP’s flexible, portable structure is positioned to adapt to such changes while continuing to meet the needs of a modern, mobile workforce,” said Rowley.
Tax cuts benefit savings
There’s a high probability, according to many financial industry experts, that President-elect Donald Trump will extend the 2017 Tax Cuts and Jobs Act that is set to expire at the end of 2025. If so, that is good news for businesses as well as an employee continuing to save money for retirement.
“The rush to convert Roth IRAs before the 2017 Tax Cuts and Jobs Act expires will likely fade away,” said Phil Battin, President and CEO of Ambassador Wealth Management. ”We suspect that these tax provisions will most likely be extended in one form or another, potentially allowing additional time to convert traditional IRAs to a Roth IRA at the current low tax rates. The extension of lower tax rates across the board will not put any additional pressure on already stretched budgets due to the rise of inflation in the last few years.”
Stabilizing Social Security
Trump vows to protect Social Security, saying he “will not cut a single penny” and plans no changes to the retirement age. In the short run, that’s a plus, as those receiving Social Security checks can continue to count on 100% of their benefits. He also proposes to end taxes on Social Security benefits. As noted by Committee for a Responsible Federal Budget, Trump’s proposed cuts would lead to a 33% benefit cut in Social Security by the year 2035, which would fall more upon America’s current younger generations who will come to retirement age by or after that time.
However, his fixes don’t address the Social Security solvency issue, as recipients will only get 100% of their benefits through 2033, unless Congress acts to shores up Social Security. “The proposed plan to cut taxes on Social Security benefits would certainly help the average retiree living on a tight budget but does pose long-term risks to funding the Social Security Trust Fund,” said Battin.
DOL Fiduciary Rule?
“Retirement in general and [the] 401(k) in particular has been – and seems likely to remain – a bipartisan issue,” said Zach Keep, Manager, Compliance and Risk at Paychex. “With that in mind we anticipate a continued focus on helping all Americans build retirement savings at the macro level.
“Generally speaking, it seems likely that there will be less of an appetite for increased regulation surrounding retirement plans given the results of the 2024 election as a whole. It will be interesting to watch how things unfold with the Fiduciary Rule, for example.”
Lifting $10,000 SALT cap
Trump is proposing to reverse a key element of his signature 2017 tax law: lifting the $10,000 cap on state and local tax deductions that he signed into law as president. “Eliminating the S.A.L.T. cap would help free up additional money to save for retirement, especially for those in high tax states such as California and New York,” said Battin. “While we don’t expect an elimination of the S.A.L.T. tax cap will pass Congress, we do think there is a potential for it to increase and perhaps even double from $10,000 to $20,000.
Caregiver tax credits
“I will support a tax credit for family caregivers who take care of a parent or a loved one,” Trump said during an October speech at New York’s Madison Square Garden.
The “tax credit for those taking care of elderly parents could help as well: the home care credit of $7,500,” said Battin. “If it passes, it could free up money that pre-retirees could set aside to help fund retirement.”
GOP control of White House, Senate, House
“The fact that the same political party has control of the Presidency, House, and Senate will make passing retirement legislation easier, although, improving retirement security in America has been one of the things that has had relatively wide bipartisan support recently,” said David Blanchett, Head of Retirement Research at PGIM DC Solutions, “and I expect this to continue in the future.”