Retirement savers and financial companies cheered Thursday. The really big change they feared—a slashing of the amount workers can contribute before taxes to their 401(k) plans—didn’t materialize in the U.S. House of Representatives tax bill.
But it does include some proposed tweaks.
Here are five changes legislators want to make to the workplace accounts, and how they could affect employees in retirement savings plans.
1. Continuing contributions
Currently, someone taking a hardship withdrawal from a 401(k) plan can’t contribute again until six months have passed. The bill would eliminate that restriction.
Usually people withdraw money for more immediate needs, said Rob Austin, director of research at benefits administrator Alight Solutions. “Paying for medical bills or for a roof over your head—why penalize them for six months afterward?” Austin said. “This keeps them on the saving path throughout the whole period.”
Also, many people forget to reinstate their contributions after six months or their employer doesn’t notify them, said Robyn Credico, a senior consultant with consulting firm Willis Towers Watson.
2. Bigger hardship withdrawals
Right now, participants can only take hardship withdrawals of money they contributed, not matching contributions from their employer or amounts that have appreciated through investments. The proposed change would allow savers to take a withdrawal based on the whole balance.
That may encourage more “leakage” from plans because there’s more money available to tap, said Austin. “But now someone who had a hurricane rip through their neighborhood can withdraw more of their savings than they could have before,” he said.