Republicans could target 401(k)s in tax reform gimmick

Tax-privileged retirement accounts such as 401(k)s could be collateral damage of a gimmick meant to help Republicans pass a sweeping overhaul of the federal tax code.

Employers and financial institutions worry that the idea, known to tax writers as "Rothification," is among the budget tricks that the taxwriters are considering to finance tax rate reductions.

The gimmick would work by changing when employer-provided retirement plans such as 401(k)s are taxed. Under current law, workers put earnings into those plans before paying taxes on them and then face taxes when they withdraw them.

Congress could change the rules so that workers instead would see their earnings taxed when they put funds in. When they reached retirement and began drawing on those accounts, the distributions wouldn't be taxed. So the plans would work more like today's Roth IRAs — hence the term "Rothification."

Such a move wouldn't change tax revenue over the long run, in theory. But it would shift a lot of tax revenue from future years into the present.