This is a huge deal and would further exacerbate a real retirement crisis in American life. I will start by sharing my opinion: 401ks are grossly inadequate to meet the retirement needs of most Americans as presently constituted. The 401k experiment has been a failure for generations of Americans. We need a true national pension system (or a network of federally-backed state pension systems) that augments Social Security earnings and provides a living retirement wage.
Here’s a background, from an article published in 2015. NBC:
You need to know this number: $18,433. That's the median amount in a 401(k) savings account, according to a recent
report by the Employee Benefit Research Institute. Almost 40 percent of employees have less than $10,000, even as the proportion of companies offering alternatives like defined benefit pensions continues to drop.
Older workers do tend to have more savings. At Vanguard, for example, the median for savers aged 55 to 64 in 2013 was $76,381. But even at that level, millions of workers nearing retirement are on track to leave the workforce with savings that do not even approach what they will need for health care, let alone daily living. Not surprisingly, retirement is now Americans' top financial worry, according to a recent Gallup poll.
To be sure, tax-advantaged 401(k) plans have provided a means for millions of retirement savers to build a nest egg. More than three-quarters of employers use such defined contribution plans as the main retirement income plan option for employees, and the vast majority of them offer matching contribution programs, which further enhance employees' ability to accumulate wealth.
But it’s better to have an inadequate option than no option at all. 401ks are what most of us have for now.
Taking away the tax advantages of the 401k will kill it dead. There would be little to no benefit to a 401k account over any other taxable account, which does not carry with it the penalties and regulations that back up 401ks as retirement savings accounts. When you raise taxes on 401k accounts, depending upon the implementation, the incentives to save could shift dramatically:
An even bigger threat could come from measures to change the tax-deferred nature of 401(k)s. Right now, any income and gains your 401(k) generates don't get taxed until you make withdrawals. But one proposal would impose a 15% tax on annual gains within 401(k) plans. For long-term stock investors, that could put 401(k) plans at a disadvantage to simple taxable accounts, where one can defer capital gains tax simply by not selling shares. Proponents of the measure suggest that the move would raise between $48 billion and $60 billion in annual tax revenue between 2018 and 2025.
Perhaps the White House would just like us all to buy an extra mattress, so we can hide retirement funds under those in small, unmarked bills.