4 Ways Trump’s Presidency Could Affect Your 401(k) in 2025
Written by
Kerra Bolton
Edited by
Amber Barkley
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President Donald Trump’s economic policies during his second term, now underway, could change the nation’s financial landscape, including 401(k) retirement plans. Potential changes include extending the 2017 tax cuts, introducing private equity investments into 401(k) plans and reinstating a ban on environmental, social and governance (ESG) investments.
Understanding how these policy shifts could affect 401(k) plans helps individuals assess their investment allocations and know when to consult financial advisors to align their retirement savings strategies accordingly.
Here are four ways Trump’s presidency could affect your 401(k) in 2025. Also, find out what retirees should be paying attention to as the Trump economy begins.
Extending Tax Cuts
Trump has consistently championed extending and, in some cases, making permanent the tax cuts his first administration enacted in 2017, which are set to expire at the end of the year. While extending the 2017 tax cuts requires congressional approval, they aim to maintain lower individual tax rates.
“If corporate taxes are reduced, it is likely that this will be directly passed on to investors with higher dividends and greater productivity,” said Crystal Stranger, CEO at Optic Tax, a tax consultancy. “So, this most certainly will increase the stock market and 401(k) returns by default.”
In addition, Trump has floated the idea of eliminating individual income taxes across the board or in specific areas, like Social Security income and tips. Continuing or making these tax changes could affect the taxation of retirement account withdrawals and contributions and influence the net growth of 401(k) balances.
“If the corporate tax gets reduced further, then it is likely that salaries will increase,” Stranger said. “However, if taxes are eliminated entirely, it may lead to some reduced salaries, as employers would not be incentivized to hire certain workers who they currently receive tax credits for.”
Depending on the individual’s salary coupled with the effects of other Trump economic policies, investors may have more or less money to contribute to their 401(k).
Private Equity Investments
The private equity industry plans to lobby for access to 401(k) plans under the Trump administration.
According to a recent Financial Times article, the private equity industry wants to allow 401(k) plans and other tax-deferred defined contribution plans to invest in leveraged buyouts, low-rated private loans, illiquid property deals and other unlisted investments. Industry executives believe this would make higher-fee funds more attractive to investors with more assets.
However, according to the article, some private equity insiders said, “Retirement savers will not have the ability to discern between credible funds and fly-by-night entrants chasing lucrative fees.”
Instead, some executives recommended that fiduciaries direct private investments rather than individuals.
Limiting Investment Choices
Trump is expected to reinstate a ban on environmental, social and governance (ESG) investments in retirement accounts. This policy change could limit investment choices within 401(k) plans, possibly shifting investments to more favorable sectors like fossil fuels and limiting diversification strategies for plan participants.
For example, an analysis by the corporate law firm Vinson & Elkins found that Congressional Republicans issued a “demand for information” from more than 60 asset managers regarding their efforts to reduce greenhouse emissions by 2050 or sooner. Consequently, numerous financial institutions backed away from investor-climate initiatives since last November.
Short-Term Market Instability
For now, Trump said he would study the impact of his trade policies, including tariffs, on American businesses and consumers. However, the president indicated that he could begin imposing a 25% tariff on Canadian and Mexican imports as soon as February, the Wall Street Journal reported.
“The tariffs Trump plans on introducing will certainly increase the value of many items sold in the U.S., ultimately reducing the purchasing power of 401(k) savings,” Stranger said.
In addition, Stranger compared Trump’s tariffs to the Smoot Hawley Act passed in June 1930, which raised tariffs on 20,000 imported goods in an effort to help American farmers.
“If tariffs cause a trade war, this could end up triggering stock market crashes,” Stranger said. “It caused retaliation from other countries and was a contributing factor in the economy not recovering after the stock market crash of 1929.”
Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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