President Trump, with Senate Majority Leader Mitch McConnell (R-Ky.), arrives on Capitol Hill to push for his tax reform agenda. (Manuel Balce Ceneta/AP Photo)

Republican tax reform could drastically and irreparably transform 401(k) and other workplace retirement plans.

In the name of tax reform, Republicans are considering changes to employer-sponsored retirement plans that could seriously derail the effort to get people to save for old age.

Many companies have already gotten rid of pensions or reduced their payouts. Social Security funding is a hot mess.

And so what does the ruling party want to do?

It wants to balance their tax cuts for businesses and wealthy Americans by possibly limiting the maximum pre-tax amount that individuals and married couples could contribute to workplace saving plans such as the 401(k) and federal government’s Thrift Savings Plan.

Read more: Seth Harris, former Acting Labor Secretary: GOP shouldn’t raid 401(k) plans to pay for tax cuts

Although no details have come out yet, media reports say Republicans are considering limiting the pre-tax contributions to $2,400 a year, a considerable reduction from the current limit of $18,000. (It goes up by $500 next year.)  If you’re over 50, the maximum is $24,000.

Read more: Contribute all that you can to your 401(k) — just in case

President Trump this week promised that 401(k) wouldn’t be touched. On Monday, he tweeted:

But by Wednesday, Trump was already backtracking on that promise. I guess all caps don’t mean what they use to.

Read more: Trump says ‘willing to negotiate’ on 401(k) limits

Of course financial services companies are siding with consumers on this issue.

Read more: Wall Street furious over proposal to slash 401(k) limits

I don’t now about you, but the overwhelming majority of my retirement savings has been done through my workplace 401(k) plan. It is my safety net. Drastically lowering the contribution levels could drive a lot of people away from the plans.

Read why workplace retirement plans work:
— From Investopedia: Your 401(k) Is More Important Than You Think

— From NerdWallet: Yes, You Need a 401(k) in Your 20s — Here’s Why

But there are critics of the plans:
Self-made millionaire says don’t put money in your 401(k)

“The 401(k) is merely where you kiss your money away for 40 years hoping it grows up. Rather than focusing on saving, focus on earning — you can’t save your way to millionaire status,” Grant Cardone, author of “Be Obsessed Or Be Average,” told CNBC.

Oh yeah, you can’t join the millionaire club by investing in a 401(k) or TSP? Tell that to regular folk who have made into the millionaire club by putting money in their workplace plans.

— From Federal News Radio: The TSP’s all-in-family millionaire’s club

— And this also from Federal News Radio: The ‘trick’ to becoming a TSP millionaire

— CNBC: Surge in 401(k) millionaires as balances hit highs

— Business Insider: How I became a 401(k) millionaire — and how you can, too

Lessons from 401(k) millionaires

As CNBC Sharon Epperson wrote: “The number of workers who have $1 million or more saved in 401(k) or other workplace retirement plans provided by Fidelity Investments nearly doubled from 2012 to 2014, according to the firm. In a separate study, Fidelity analyzed over 5,500 plan participants who made less than $150,000 a year, yet had amassed over $1 million in 401(k) assets by the end of 2012.”

Five habits of 401(k) millionaires from Fidelity Investments

Color of Money question of the week
What do you think of any proposal to reduce 401(k) contribution limits? Send your comments to colorofmoney@washpost.com. Put “401k” in the subject line. Please include your name, city and state. Here’s what some were tweeting:

Live chat today
I’m live every Thursday from noon (ET) to 1 p.m. to take your personal finance questions. No guest this week. It’s just you and me. Join the discussion here.

How much does it take to be wealthy?
Charles Schwab did a national survey to see how much it would take for people to consider themselves rich. Survey participants on average said they’d need $2.4 million to be considered wealthy. So last week I asked: “How much do you think it takes to be rich?”

James wrote, “My definition of ‘wealthy’ is having enough money not to have to worry about money. Whatever makes you comfortable and worry free is the true definition of wealth. A dollar amount for me would be $2 million.”

T.C. of Orlando, Florida had a long answer, but it’s worth reading:

“My wife and I are both 70,” he said. “We both grew up in families with very limited means. We’d had to work for everything we have. My wife retired at age 62 when her company was absorbed by another firm. I retired in 2012 (age 65) after 43 years with the same Fortune 50 employer with a pension (with 50% survivor benefits) and some level of tax-free money for retiree medical benefits. Prior to retirement we had been working with a financial adviser who put in place a retirement plan. We were living, and continue to live, debt free. We structured our portfolio with diversified investments, with both qualified, non-qualified accounts and cash. Each of us has an annuity, and I have fully paid up life insurance. We also have a joint long term care policy that has been in place since 2006 . Two years prior to my retirement we put in place a budget with very detailed income to actual expense detail. We have carried this tracking into retirement and adjust the budget, as needed, at the end of each year to forecast our next year expenses vs. expected income.

He goes on to write: “My wife started collecting social security at age 62 shortly after she retired. We know this was not a good financial move due to the Social Security benefit reduction, but it was the ‘right’ decision to give her the sense that she replaced some of her earnings. I started taking spousal benefits on her record at my age 66. I was the higher earner and I started taking my Social Security benefits on my record at age 70. We are in generally good health and well covered with our original Medicare, a Medigap plan and a Part D plan. We had been aggressive savers when working, educated two our children and seeded our grandchildren’s 529 plans. To date, we have been living on my pension, and our Social Security benefits and still putting away some of our fixed retirement income into our retirement accounts. We have been able to maintain our pre work life style without any compromises, since we always lived below our means (a legacy of our formative years). We will have to start taking required minimum distributions from our respective traditional IRAs in 2018. This will be the first time we take money out of any retirement account. We will reinvest the proceeds that are not consumed by taxes.

And my question: “We are already ‘rich’ in a sense as described above. Our concerns living in retirement, excluding calamitous events completely out of our control, are our health as we age, health care costs, inflation and taxes. These are the unknowns. The Forbes average of $2.4 million would make us feel ‘richer’ in that it would allow us to absorb within reason these unknowns, continue to live well, contribute generously to charities, and leave a legacy to our children and grandchildren to a greater extent than we can today.”

In this couple’s answer is a lot of what it takes to save enough to live well in retirement.

Color of Money columns this week
Knowledge isn’t power. The right knowledge is power.

Stay informed about your money.

In addition to this newsletter, read and share my weekly personal finance columns.

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Have a question about your finances? Michelle Singletary has a weekly live chat every Thursday at noon where she discusses financial dilemmas with readers. You can also write to Michelle directly by sending an email to colorofmoney@washpost.com. Personal responses may not be possible, and comments or questions may be used in a future column, with the writer’s name, unless otherwise requested. To read more Color of Money columns, go here.

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