While many tax payers are still trying to sift through the Tax Reform bill to see what impacts, negative or positive, there will be for them, here are a few things that did not change.
Your 401(k) was spared:
A firestorm of criticism blew up last fall when it was learned that the House of Representatives was considering severely limiting the amount or pre-tax salary retirement savers could contribute to their 401(k) plans. In the end, though, Congress decided to leave 401(k) s alone, at least for now. For 2018, savers under age 50 can contribute up to $18,500 to their 401(k) or similar workplace retirement plan. Older taxpayers can add a $6,000 “catch-up” contribution, bringing their annual limit to $24,500.
You can still stretch your IRA:
Early on in the tax-reform debate, it appeared that Congress would put an end to the “stretch IRA,” the rule that permits heirs to spread payouts from an inherited IRA over their lifetime. This could allow for years, or even decades, of continued tax-deferred growth inside the tax shelter. One plan that gained traction on Capitol Hill would have forced heirs to clean out inherited IRAs within five years of the original owner’s death. The accelerated payout would have sped up the IRS’s collection of tax on the distributions. Ultimately, though, this plan wound up on the cutting room floor. The stretch IRA is still available as long as the heir properly titles the inherited account and begins distributions, based on his or her life expectancy, by the end of the year following the original owner’s death.
The Do-Over is done:
The new law will make it riskier to convert a traditional individual retirement account to a Roth. The old rules allowed retirement savers to reverse such a conversion—and eliminate the tax bill—by “recharacterizing” the conversion by October 15 of the following year. That could make sense if, for example, the Roth account lost money. Recharacterizing in such circumstances allowed savers to avoid paying tax on money that had disappeared. Starting in 2018, such do-overs are done for. Conversions are now irreversible.
Please make sure to review and update your retirement plans today.