Financial industry groups and Democratic lawmakers are concerned that Republicans’ forthcoming tax-reform bill could make a big change to the taxing of retirement funds. 
 
 
 
 Stakeholders say they’ve heard that Republicans are considering significantly lowering the amount of money people can tuck into their traditional 401(k) plans on a pretax basis. 
 
 Currently, people under the age of 50 can contribute up to $18,000 annually to their traditional 401(k) plans. Those contributions are paid before taxes, meaning people don’t pay taxes on the money until they pull it out of their account. 
 
 The potential change that people following the tax bill are hearing about would lower the maximum annual contribution to $2,400. Amounts over $2,400 could be put into Roth 401(k)s, where the money is taxed upfront but not when it’s withdrawn. 
 
 It’s unclear how seriously lawmakers are considering reducing the cap on pretax contributions to 401(k)s. But industry groups are worried that dramatically lowering it would reduce the amount that people save for their retirement. 
 
 
 
 Jill Hoffman, vice president of government affairs at the Financial Services Roundtable, said that this option is “something that’s a cause of great concern” both for those managing retirement plans and for those who are recipients. 
 
 
 
 The tax framework congressional GOP leaders and the White House released last month said that legislation would retain tax benefits that encourage retirement security and that lawmakers were encouraged to simplify the benefits. 
 
 
 
 “Tax reform will aim to maintain or raise retirement plan participation of workers and the resources available for retirement,” the document states. 
 
 
 
 Emily Schillinger, a spokeswoman for House Ways and Means Committee Republicans, said that “members are developing pro-growth tax reform policies that will encourage and support retirement savings for all Americans.” 
 
 
 
 Lowering the cap on pretax contributions would raise revenue in the short-term, which would help lawmakers pay for lowering tax rates. Under the budget resolution that Senate Republicans approved Thursday, a tax-reform bill can’t add more than $1.5 trillion to the deficit over 10 years. 
 
 
 
 But critics of a reduction in the 401(k) limit say that so-called “Rothification” is a budget gimmick that would raise revenue temporarily, but lower it in the long run. 
 
 
 
 While employers can currently give workers the option of choosing between traditional 401(k)s or “Roth” accounts, most workers choose the former, where the money is deposited on a pretax basis. 
 
 
 
 According to the Investment Company Institute (ICI), about 55 million Americans participate in 401(k) plans, and the plans hold about $5 trillion in assets. The group found that 80 percent of households with 401(k)s and other types of defined-contribution retirement plans think the tax treatment of the plans is a big motivator for contributing. 
 
 
 
 ICI, Financial Services Roundtable, the AARP and other groups have formed a coalition called Save Our Savings in order to fight to protect retirement savings in the tax-reform debate. 
 
 
 
 A person who works closely with the coalition said that there’s a fear that if Congress caps pretax contributions at $2,400, “then $2,400 becomes the new default.” 
 
 
 
 “That’s devastating for long-term retirement security,” the person added. 
 
 
 
 David Gray, senior vice president of workplace retirement plan solutions at Fidelity, said if Congress decides to move in the direction of limiting pretax contributions, the cap should be $9,000 annually or more, rather than $2,400. He also said that Congress should “enhance and expand” the current saver’s credit that low- and middle-income households can take for making contributions to retirement plans. 
 
 
 
 “From our perspective, we are supportive of a pro-growth, pro-investor package, and we understand Congress may need to look at some pay-fors for that tax reform,” Gray said. “We believe that any tax-reform proposal that impacts retirement savings needs to maintain the policy goal of encouraging and enhancing savings.” 
 
 
 
 The financial industry broadly supports tax reform and is trying to talk with lawmakers about the potential consequences of curbing pretax retirement contributions. The Save Our Savings coalition is holding a fly-in with CEOs and other leaders on Nov. 1. 
 
 
 
 Besides industry groups, Republicans’ consideration of a cap on pretax retirement contributions has garnered pushback from Democratic lawmakers. 
 
 
 
 A Wall Street Journal article Friday on the potential cap prompted a quick response from Senate Minority Leader Charles Schumer Charles (Chuck) Ellis SchumerFacebook reeling after damning NYT report Schumer warns Trump to stay out of government funding negotiations Schumer predicts Nelson will 'continue being senator' if 'every vote counted' MORE (D-N.Y.). 
 
 
 
 “Republicans are so determined to cut taxes on the wealthy that they're willing to tax the retirement accounts of millions of middle class Americans,” Schumer said in a statement. “The GOP’s total devotion to millionaires and billionaires comes at the expense of every family using a 401(k) to save for a decent retirement.” 
 
 
 
 Last month, following reports that "Rothification" was under discussion, Democrats on the Ways and Means Committee and Senate Finance Committee spoke out in letters to GOP congressional leaders and Trump administration officials. 
 
 House Majority Leader Kevin McCarthy (R-Calif.) in early September pushed back on the idea that Republicans want to tax 401(k)s. 
 
 
 
 “Why would you punish people when they’re actually saving for their own retirement and they’re not looking to government?” he said in an interview on the Fox Business Network. “You want to incentivize that even further. Don’t punish people who actually save their own money.” ||||| Proposals to cap the amount that Americans can contribute before taxes to 401(k) plans and individual retirement accounts are unsettling professionals in the retirement industry. 
 
 Congressional Republicans are looking for ways to generate revenue to support broad reductions in individual tax rates. One idea is to limit the amount of pretax money households can sock away for retirement saving. Such a move would likely generate significant political blowback, but it hasn’t been explicitly ruled out, stirring worry among industry lobbyists. 
 
 Many opponents say any plan that cuts contribution limits would slow the growth of the asset-management industry. 
 
 Members of the House Ways and Means Committee are widely expected to release a version of the tax bill by mid-November. Specifics on a wide range of issues remain unclear. Emily Schillinger, a spokeswoman for the Ways and Means Committee, declined to comment. 
 
 Lobbyists and others in the retirement and financial-services industries who have spoken to congressional staff and committee members say lawmakers are looking at proposals that would allow 401(k) participants to contribute significantly less before taxes than what is currently allowed in a traditional tax-deferred 401(k). An often mentioned amount is $2,400 a year. It isn’t clear whether that would apply only to 401(k)s or IRAs or both. 
 
 Currently, employees under age 50 can save up to $18,000 a year in a 401(k) before taxes, while those 50 or older can set aside up to $24,000. In an IRA, the annual contribution limits are capped at $5,500 and $6,500 for the same age groupings. The 401(k) limits are scheduled to rise to $18,500 and $24,500 in 2018. 
 
 Dave Gray, a senior vice president at Fidelity Investments, said a $2,400 limit would give the company a significant concern and would essentially require trade-offs between the certainty of the immediate deduction and the prospect of tax-free retirement income. 
 
 Mr. Gray, speaking Friday at the U.S. Chamber of Commerce in Washington, said that implementing such a system would be extremely difficult and could take the industry 12 to 24 months to implement. 
 
 There are two basic types of retirement accounts. With a traditional 401(k) or IRA, account holders generally get to subtract their contributions from their income. But they must pay ordinary income taxes on the money when they withdraw it, typically in retirement when many people are in a lower tax bracket. 
 
 With the second variety, called a Roth 401(k) or Roth IRA, there is no upfront tax deduction but the money increases tax-free. 
 
 Under some of the proposals being floated, contributions above the amount set for tax-deferred savings would have to go into a Roth account. The change wouldn’t affect existing balances in traditional 401(k)s and IRAs, those people said, and it is likely that any matching contribution from an employer would continue to go into a tax-deferred 401(k) account. 
 
 Congress’s goal in making the switch is to reduce a tax break that is projected to cut federal revenue by $115.3 billion this fiscal year so the money can be used to pay for lower tax rates. The switch could boost government revenue over the next decade, the period when the tax bill will likely face a $1.5 trillion cost constraint. 
 
 Shifting to Roth-style accounts would move tax revenue from the future to the near term. 
 
 That would help Republicans meet budgetary targets now but could cause problems with a requirement that prevents the tax bill from expanding long-run deficits if they want to pass a bill without Democratic votes under a fast-track process. 
 
 With the aim of targeting retirement-tax incentives more directly at the middle class, lawmakers may also make changes to an underused tax credit that acts like a government match to retirement savings. 
 
 If lawmakers enact these changes, many savers will face a choice between maintaining their current savings rate or their current take-home pay. 
 
 The sacred cows of the tax code—including breaks for home mortgage interest and state and local taxes—are being challenged. WSJ's Richard Rubin explains. with real cows. Photo/Illustration: Heather Seidel/The Wall Street Journal 
 
 For example, someone in the 25% income-tax bracket who puts $1,000 into a traditional 401(k) today would save $250 in taxes, reducing take-home pay by a net amount of $750. But if forced to put $1,000 in a Roth account, take-home pay would decline by the full $1,000, because there was no tax deduction. The advantage is that there would be no taxes due when the money is removed later from the retirement account. 
 
 When the White House unveiled the outline of its tax-overhaul plan in April, officials promised to preserve existing tax breaks for retirement plans. A more detailed plan released by the White House and congressional leaders in September pledged to retain “tax benefits that encourage work, higher education and retirement security” but left open the possibility of changes to “simplify these benefits to improve their efficiency and effectiveness.” 
 
 Sen. Rob Portman (R., Ohio) said he was skeptical about the idea of lower pretax deferrals for retirement savings. 
 
 Mr. Portman said Thursday that he didn’t want to make the decision just for revenue reasons. “I’m deeply concerned about it,” he said. “I don’t think you want to disincentivize retirement savings in any way right now.” 
 
 In a statement, Senate Minority Leader Chuck Schumer (D., N.Y.) criticized the idea of capping pretax contributions to retirement savings accounts. “Republicans are so determined to cut taxes on the wealthy that they’re willing to tax the retirement accounts of millions of middle-class Americans,” he said. “The GOP’s total devotion to millionaires and billionaires comes at the expense of every family using a 401(k) to save for a decent retirement.” 
 
 Americans have saved about $7.5 trillion in 401(k)-type accounts, plus $8.4 trillion in individual retirement accounts, according to the Investment Company Institute, a trade group for mutual funds. But some researchers say a significant percentage of Americans haven’t saved enough to maintain their standard of living in retirement. 
 
 Industry groups have an incentive to keep the status quo and are trying to preserve the tax benefits of the current system. This year, AARP joined with groups representing employers and asset managers—including Fidelity Investments, T. Rowe Price Group Inc. and TIAA—to form Save Our Savings Coalition to lobby for the existing tax treatment of retirement plans. 
 
 “Asset managers tend to not like the Roth approach,” says Shai Akabas, director of economic policy at the Bipartisan Policy Center in Washington, which is studying the potential impact on saving rates of a Roth switch. Because taxes are taken out at the beginning, he said, assets in retirement accounts, and the fees these companies collect on them, are likely to be lower. 
 
 Write to Anne Tergesen at anne.tergesen@wsj.com and Richard Rubin at richard.rubin@wsj.com
– Multiple sources say Republican lawmakers may be setting their sights on Americans' retirement accounts to pay for tax cuts, specifically to the business tax rate. The New York Times reports Republicans are expected to release a tax reform plan sometime in the next few weeks, and that plan could include a drastic reduction in the amount of money workers are allowed to put into 401(k) accounts. Workers are currently allowed to contribute $18,000 annually to 401(k) accounts ($24,000 if they're over 50 years old), but sources say Republicans are considering capping contributions at $2,400 annually. It's unclear if the cap would also apply to IRAs, which are currently limited to $5,500 annually ($6,500 for workers over 50), according to the Wall Street Journal. The idea is that because income put into a 401(k) or IRA isn't taxed until it's withdrawn years later, lowering contributions would generate immediate tax revenue for the government—an estimated $115 billion in 2018. But that represents less than 8% of the tax cut planned by Republicans, and industry groups worry it will reduce the amount of money Americans save for retirement. One person working to preserve retirement savings during the tax reform process tells the Hill capping contributions at $2,400 could be "devastating for long-term retirement security." It would also likely be massively unpopular with middle-class workers. “Republicans are so determined to cut taxes on the wealthy that they’re willing to tax the retirement accounts of millions of middle-class Americans,” Sen. Chuck Schumer says.