Congress has decided to give a gift to the US taxpayers through passage of recent legislation. That legislation made drastic changes to rules regarding retirement accounts and bringing back to life tax provisions that had expired in 2018 (with retroactive application).
The SECURE Act (Setting Every Community Up for Retirement Enhancement Act of 2019) was passed as part of the budget bill that was signed into law on December 20, 2019. This act impacted changes for retirement through various provisions of the act. Some of the highlights:
- Change to Required Minimum Distribution (RMD) age from 70.5 to 72 years of age, for those that have not attained age 70.5 by 12/31/2019
- If taxpayer has earned income after attaining RMD age, the taxpayer can contribute to a traditional IRA and deduct the contribution (subject to other limitations)
- New exception to the 10% penalty for early withdrawals from Qualified Plans (IRAs, 401Ks, 403Bs) for distributions made during 1 year period starting from the date of birth of a child or date the adoption of an eligible adoptee is final. The maximum amount is $5,000 per individual per birth or adoption (the $5,000 means taxpayer and spouse could withdrawal up to $5,000 each, $10,000 total) - this offers an opportunity for taxpayers in 2020 that had a birth or adoption in 2019 to take funds from qualified account without the 10% penalty
- Treatment of previously in-eligible income to now be treated as earned income and thereby qualify for retirement contributions. That income includes "Difficulty of care" payments (excluded from taxable income under §131) and also taxable fellowship and stipend payments for graduate or postdoctoral students (effective after 12/31/2019)
- Changes to distributions for inherited retirement accounts - in general, defined contribution plans (401Ks and 403Bs) and IRAs must be fully distributed to beneficiaries by the end of the 10th calendar year following the death of the covered retirement owner. That means the account balance must be withdrawn in total within 10 years, that could be some in each year or postpone until the 10th year. There are exceptions to the 10 year period for a surviving spouse, child that has not reached age of majority, disabled beneficiary (as defined in §72(m)(7), chronically ill individual (defined §7702B(e)(2)) or a beneficiary that is not more than 10 years younger than the deceased.
- Changes to 529 Educational Savings Accounts to allow some funds be used to pay student loan principal, up to $10,000 for lifetime for the individual. Also changes to allow definition of qualified higher education expenses to include apprenticeship expenses for programs registered and certified with the Secretary of Labor under the National Apprenticeship Act.
These are highlights of areas that were impacted by the SECURE Act. Also signed into law was the TCDRA (Taxpayer Certainty and Disaster Relief Act) which made extended previously expired tax provisions and made changes related to Disaster provisions. The extended provisions were made retroactive to 2018 tax year and good through tax year 2020.
Some of the items of the TCDRA were:
- Exclusion from income of cancellation of debt related to a principal residence
- Mortgage insurance premiums deduction qualify as mortgage interest as an itemized deduction
- Medical expenses allowed as an itemized deduction for the amount that exceeds 7.5% of adjusted gross income (that had increased to 10% of AGI)
- Tuition and Fees deduction as an adjustment to gross income
- Nonbusiness energy property credit (windows, doors, etc.) - this has a lifetime cap
Various other miscellaneous provisions that impact a smaller segment of the taxpayer population that will not be mentioned here.
If you have questions, please contact our team at the office to discuss.
Comments
Post a Comment