What you need to know about changes to retirement and 529 plans
Michael D. Ocker
February 24, 2020
The new budget bill passed by Congress on December 20, 2019 impacted both retirement and college savings plans. While many are still waiting for further guidance from the IRS on several details of the bill, we compiled a short list of the major changes that may affect you.
Retirement plan changes:
- The rule that restricted deposits to an IRA after the age of 70 and ½ has been repealed. Under the new bill, starting in 2020, any person of any age can make a deposit to an IRA with earned income (e.g., wages or self-employment).
- The mandatory age to begin distributions has changed from 70 and ½ to 72.
- Recipients of stipends and fellowships can now use these funds to make IRA contributions.
- Up to $5,000 can be withdrawn without penalty for the birth or legal adoption of a child up to one year after birth or adoption. Withdrawals are taxable; however, if redeposited within 60 days, funds will not be taxed.
- If an IRA is inherited from someone who passed in 2020 (other than a spouse and a few other exceptions), funds must now be distributed within 10 years.
- Long-term part-time workers will be able to join their company’s 401k plan. Except in the case of collectively bargained plans, the law now requires employers maintaining a 401k plan to offer one to any employee who worked more than 1,000 hours in one year or 500 hours over 3 consecutive years.
- Small business owners can receive a tax credit for starting a retirement plan—up to $5,000.
College saving (529) plan changes:
- Withdrawals of up to $10,000 during one’s lifetime can be used to repay student loans of an account beneficiary (or their siblings) without tax or penalty, making it a qualified expense.
- Withdrawals can be made to pay for an apprenticeship program once approved.
- The tuition and fees deduction has been retroactively restored from 2018-2020.
- Children with higher interest, dividends or capital gain income are retroactively taxed at their parent’s tax rates rather than the potentially higher trust tax rates.
If you have any questions, please reach out to our firm. We are here to help!