More employees would be eligible to make tax-exempt retirement contributions under a bill moved out of the Assembly Financial Institutions and Insurance Committee Monday.
Assemblyman Ned Thomson’s legislation (A512/S737) would provide income tax exclusions for contributions made to 401(a) pensions, 403(b) plans, 408 IRAs, 457 deferred-compensation plans, and federal Thrift Savings Funds. Currently, only 401(k) contributors enjoy that up-front exemption.
“The Federal Reserve recently reported that less than 40% of workers felt they were on track with their retirement savings. The ongoing inflation crisis has only made saving more out of reach for the average New Jersey resident,” Thomson (R-Monmouth) said. “This bill would align our state with how the feds and other states handle worker retirement contributions. Workers won’t have to choose between paying for the bills today or saving for their futures.”
Today, less than 4% of companies offer pensions. Starting in the 1980s, companies shifted away from pensions – which were expensive to administer and carried a lot of risk – to 401(k) plans, created by Congress under The Revenue Act of 1978. With such plans, a percentage of an employee’s income is taken from their paycheck, pretax, and may be matched by employer contributions. That money is then invested and grows with compounded interest. By 2020, more than 60 million Americans have $6.5 trillion in over 600,000 401(k) plans.
The numerous other types of employer-sponsored retirement accounts are most often offered by nonprofits, government and education employers, and those who are self-employed.
Thomson said expanding income tax exemptions will save taxpayers $205 million in the first year. Ongoing savings will vary based on employee savings patterns.
“We’re not only looking at the future of the New Jersey worker, but the health of the state as well. We need to continue to strive to make New Jersey an attractive place for businesses and employees to stay in and move to,” Thomson added.
The Senate passed its bill back in March.