Retirement savings changes

For this assignment present both positive and negative consequences of the proposed tax law change with
relation to the topic stated below: Assume that this is presented to your most valuable client.
Retirement savings changes: Under current law, taxpayers do not pay any tax on contributions to pre-tax
retirement plans. A new proposal would replace the deduction with a 26% credit. In effect, lower-income
earners (those in brackets lower than 26%) would reap a higher benefit by contributing to pre-tax retirement
accounts by receiving 26 cents per dollar of contribution. Conversely, higher-income earners may have to
begin paying tax on pre-tax retirement contributions. For example: If a taxpayer finds themselves in the 39.6%
bracket and they contribute to their 401(k), they will receive a credit of only 26% and have to pay 13.6% on the
contribution. If they are in the same tax bracket when they later distribute the money, they will have to pay an
additional 39.6% tax. In total they will have paid 53.2% of tax on their retirement savings if the plan is passed
as outlined.