What Was NOT Passed As Part of the Tax Reform Legislation
The Tax Cuts and Jobs Act that was passed at year-end contained relatively few retirement plan-related provisions. However, likely due to the many retirement-related provisions that were discussed and/or included in the underlying Senate and House bills, rumors persist that the legislation dramatically impacted retirement plans. Thus, I thought I would dedicate this edition of Top of Mind to clearing up any ambiguities that may exist about the current law.
- Individuals can contribute as much to their retirement plans as they have in the past — Individuals' contributions appear to be the most misunderstood provision of the new law, likely due to the discussion during the legislative progress about limiting them. Talk surrounding the “Rothification” of retirement plan contributions made headlines, as this would have restricted the ability to make pre-tax deferrals in favor of after-tax Roth contributions. However, "Rothification" never even made it to the House and Senate bills; instead, there were some watered-down restrictions, such as additional limitations on 403(b)/457(b) plan deferrals, and the elimination of the Age-50 Catch-Up for high earners. However, none of these additional limitations were included in the final law; thus, the current contribution limits for retirement plans were completely unaffected by the tax reform legislation.
- All “catch-up” elections were preserved, including the Age-50 Catch-Up, and the special 403(b) and 457(b) catch-up elections — At some point, there was language in at least one underlying bill that would have affected all of these limits, but again, the final law contained no restrictions. Even my personal favorite (italics to highlight sarcasm), the 15-year catch-up election for 403(b) plans, was preserved.
- Nonqualified deferred compensation programs (NQDC) were largely unaffected by the legislation — Other than some changes to the excessive employee remuneration rules (including an expansion to tax-exempt entities) and a carve-out for qualified equity grants, NQDC plans were not affected by the new tax reform law, either. There had been language in the underlying bills that would have essentially rendered many forms of NQDC useless for corporate entities, and would have similarly eliminated the usefulness of 457(b) plans or governmental entities, but again, these provisions were not included in the final legislation.
In conclusion, if you are still hearing that the tax reform legislation had a significant effect on retirement or NQDC plans, your information is likely outdated or incorrect.
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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