The Tax Cuts and Jobs Act of 2017 generally lowered federal income tax rates, with some exceptions. Among the ways in which lower rates impact tax planning, they make unmatched contributions to traditional employer retirement plans less attractive.
Example 1: Chet Taylor has around $100,000 in taxable income a year. Chet contributed $12,000 to his company’s traditional 401(k) in 2017, reducing his taxable income. He was in the 28 percent tax bracket last year, so his federal tax savings were $3,360 (28 percent of $12,000). An identical contribution this year will save Chet only $2,880, because the same income would put him in a lower 24 percent bracket.
Not everyone will be in this situation.