Yet another year end tax bill signed by the President on December 20, 2019. This provides full-year government funding through September 30, 2019.
Significant Retirement Plan Changes
- The bill increases the age for required minimum distributions (RMD)from individual retirement accounts to 72 (from 70½). This applies to distributions required to be made after December 31, 2019, with respect to individuals who attain age 70 ½ after such date.
- It would allow part-time workers to participate in 401(k) plans.
- It eliminates the so-called “stretch IRA”which allowed beneficiaries of IRAs and qualified plans to withdraw all money from inherited accounts over their lifetime, but now, distributions must be taken within ten years.
- It allows new parents to take early distributions from a 401(k), IRA or another qualified retirement plan within a year after a birth or adoption without incurring early withdrawal penalties (limited to $5,000).
- No age limit on IRA contributions although taxpayers may still be subject to other limitations (earned income and coverage by another retirement plan).
Other Sections of Note:
- The new kiddie tax included in the Tax Cuts and Jobs Act is repealed (old kiddie tax law is still in place).
- Qualified Expenses for Section 529 Plan distributions is the repayment of an education loan up to $10,000 maximum. Tracking of the expenses will be important.
Extenders through 2020 (retroactive to January 1, 2018)
- Excludes from gross income the discharge of qualified principal residence indebtedness income.
- The medical base remains at 7.5% instead of 10%.
- Deduction for mortgage insurance premiums as qualified residence interest.
- Deduction for tuition and related expenses.
- Non-business Energy Property Credit (i.e., insulation, storm windows, etc.)
MJW Editorial Comment: Although some of these extenders may help some taxpayers, and there are many, many more not listed above, we feel Congress and the President acted irresponsibly in retroactively extending many of the “extenders.” But this is not to say that there aren’t some beneficial changes with the “Further Consolidated Appropriations Act of 2020”. The purpose of many of these “extenders” is to give taxpayers a tax incentive to do something. Our concern is that by reinstating extenders retroactively to January 1, 2018, it doesn’t seem like a great way to “incentivize” anyone to do something in 2018 or most of 2019. It gives the illusion of providing tax benefits without the ability for taxpayers to take action of “tax breaks.”