One good thing about the proposed bill is that a reduction in the pre-tax 401(k) savings limit is off the table, for now.
The bill has a lot of other details that do affect retirement savings. For example, the bill released Nov. 2, would lengthen the amount of time an employee has to pay back a loan from a 401k plan without a penalty if they leave a company or the plan terminates.
Under current rules, a worker in such a circumstance has up to 60 days to pay back the loan or the loan gets treated as a taxable distribution. It's also subject to an additional 10% penalty if the employee is under age 59½.
The new bill would extend that time period, giving participants until the due date for filing their tax return for that year to contribute the loan balance to a retirement account. For example, an employee leaving in January 2018 would have until April 2019 to repay the loan.
The better vehicle to consider taking loans from if needed would be a cash value life insurance policy like an Indexed Universal Life policy or IUL.
Tax-free income can be obtained from an IUL by taking tax-free loans against the cash value at any age. These loans work similarly to home equity loans in the sense that the investor does not pay income tax on the money borrowed. Unlike a home equity loan, though, the investor does not have to pay back the loan balance during their lifetime. This is pertinent to tax codes 7702 and 72(e)
A properly designed IUL policy can link your cash value to an index like the S&P 500 without the risk. Your account will participate in a percentage of the index gains yet when the index falls you will not lose any cash value. One IUL policy with an A+ rated company has a 145% participation rate with no cap.
Tax-deferred retirement accounts are just that “tax-deferred” meaning you’re kicking the can down the road as far as when you pay Uncle Sam. Income derived from a retirement account like an IRA is taxed at an ordinary income rate unlike distributions in the form of loans from an IUL.