The upcoming election could have implications for the retirement savings of millions of Americans. Joe Biden's tax plan includes a provision that would replace deductions for retirement savings contributions with refundable tax credits. The American Retirement Association estimates "tens of millions" of people could lose their company retirement plans as a result of this change.
The difference in replacing tax deductions with tax credits means businesses that offer retirement plans to their employees would get a smaller return on that investment. "By making it a tax credit, it is not as beneficial as a tax deduction," says Adam Hartung, financial expert and CEO of Spark Partners. "Businesses that are very profitable will take the tax credit, because it makes no difference...but if they're less profitable, the credit isn't valuable to them, so therefore they wouldn't put the money in."
Hartung tells KTRH the change would specifically impact small businesses with 25 or fewer employees. "Plumbers, electricians, people that own one restaurant or one retail store...somebody like that who has a handful of employees," he says. "In the past, they've offered money for 401(k)s...they may now say they're going to set a maximum limit on how much they'll contribute to their employees' retirements."
What that means is many of these small businesses may replace employee 401(k)s with a different retirement account. Or, they could stop offering retirement benefits altogether, but Hartung thinks that would be risky for employers. "You give people a 401(k) and people put money in it because it's a form of compensation," he says. "And if you stop giving someone that deferred compensation through a retirement plan, they're going to find somewhere else to work."