403(b) Curriculum Library


Compliance Alert: Tax Bill Signed into Law

On December 22, President Donald Trump signed the most sweeping piece of tax reform legislation in over 30 years.  Known as the American Tax Cuts and Jobs Act, it will invoke extensive individual and corporate tax reforms, most of which will be effective on January 1, 2018, less than 10 days from now.   
While there is little time to prepare for the changes, there are few provisions of the bill that actually affect retirement benefits.  Many retirement-related modifications had been rumored, and some (such a proposed combined deferral limit for 403(b) and 457(b) plans) were even part of the underlying Senate and House bills. However, there are only two provisions that will become law:

  • Allowing employees, upon termination of employment, the option to no longer be "stuck" for the taxes on outstanding loans - Some retirement plans do not permit the continued repayment of loans following termination of employment; for those plans, the outstanding loan is taxable to the participant unless a contribution to an IRA in the amount of the outstanding loan balance is made within 60 days of termination of employment. The proposal extends this deadline to the due date of the tax return for the tax year of termination.
  • Eliminating the ability to re-characterize traditional to Roth IRA conversions, or vice versa - While not of significant concern for qualified retirement plan sponsors, this retirement-related provision is worth mentioning. Apparently, individuals were using this strategy as a means to avoid paying certain taxes.  An example provided in the bill was someone converting to a Roth IRA, investing aggressively, benefiting from any gains (which are not subject to tax), and then retroactively reversing the conversion if the taxpayer suffered a loss, so as to avoid taxes on some, or all, of the converted amount.  Note that this provision only applies to conversions; IRA contributions can still be re-characterized from traditional to Roth and vice versa. 

While retirement plans are relatively unaffected by the new tax reform legislation, there are a number of benefits and compensation-related provisions of the bill that will affect plan sponsors. For those interested, Groom Law has produced a detailed summary of these changes (the final column of the chart, labeled "Conference Report," is the explanation of the specific benefit or compensation-related provision that will become law).*  
 
Stay tuned to Cammack Retirement for continuous updates on the new tax reform legislation


*The information on the site referred to above has been obtained from sources that are believed to be reliable. However, Cammack Retirement does not independently verify the accuracy of this information and makes no representations as to its accuracy or completeness.

Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

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