Rich Habits Tax Tips

At the very end of December, 2019, President Trump signed into law the Secure Tax Act. The purpose of this law was to update certain tax rules surrounding retirement plans.

Here are the highlights:

• RMD Age Change – Required Minimum Distributions (RMDs) from IRA’s and Retirement plans had been set at age 70 1/2 for quite some time. This law increases the age for RMD’s to 72.
• Goodbye Stretch IRA – In the past anyone who inherited an IRA, other than a spouse, could cash out the IRA or take RMDs over their life expectancy. This law now required non-spouse beneficiaries to distribute 100% of an inherited IRA within ten years.
• $5,000 Special Distribution – Anyone under the age of 59 1/2 who withdraws money from their IRA, must pay a 10% penalty as well as income tax on the distribution. This law allows individuals under age 59 1/2 to withdraw up to $5,000 from an IRA, penalty-free, if those funds are used for either the Adoption or Birth of a Child.
• Use 529 Plan to Pay Down Student Loans – 529 plans are tax-advantaged college savings plans. You can withdraw the money from a 529 Plan to pay tuition, fees, room and board for college, graduate school or trade schools. This law now allows you to withdraw up to $10,000 from your 529 to pay down student loans.
• $15,000 Retirement Plan Credit – Employers who establish a new retirement plan were previously entitled to a $500 tax credit that could be used to reduce income tax on business income. This law increases this credit to $5,000 a year for three years, or $15,000.
• 500 Hour Rule – Previously, if you wanted to participate in your company’s retirement plan, you had to work a minimum of 1,000 hours. This law now allows part-time employees who work 500 hours a year, for three consecutive years to participate in their company’s retirement plan

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