Written by Jennifer Cochran

The bulk of the bill lays out how the government will appropriate federal budget monies across various departments and programs. However, the bill also includes provisions that relate to taxes. The three areas that are affected are TCJA Fixes, extenders and retirement plan changes (Secure Act). Below is a highlight of the items in the ACT.

TCJA Fixes

The application of the estate and trust tax rates to certain unearned income of children has been reverted to the prior use of the parent’s tax rates for tax years beginning after 2019. The ACT also eliminates the parking tax for tax-exempt organizations retroactively. However, the ACT did not fix the recovery period for improvement property. The recovery period is still 39-year property and doesn’t qualify for bonus.

Extenders

The more well-known of the extenders are those that affect individuals. These include the reduction in the adjusted gross income floor for medical and dental expenses deduction from 10% to 7.5%, the above the line deduction for tuition and fees, the treatment of mortgage insurance premium as deductible qualified residence interest, and exclusion of qualified principal residence indebtedness from gross income.

The ACT extends the non-business energy property, qualified fuel cell vehicles, alternative fuel vehicle refueling property and energy efficient commercial building credits through 2020.

Retirement Plan Changes

The Setting Every Community Up for Retirement Enhancement Act of 2019, better known as the SECURE Act. was part of the spending package signed by President Trump on December 20th, 2019.

The far-reaching bill includes significant provisions aimed at increasing access to tax-advantaged accounts and preventing older Americans from outliving their assets.

The following is a recap of the SECURE ACT:

Make it easier for small businesses to set up 401(k)s by increasing the cap under which they can automatically enroll workers in “safe harbor” retirement plans, from 10% of wages to 15%.

Provide a maximum tax credit of $500 per year to employers who create a 401(k) or SIMPLE IRA plan with automatic enrollment.

Enable businesses to sign up part-time employees who work either 1,000 hours throughout the year or have three consecutive years with 500 hours of service.

Encourage plan sponsors to include annuities as an option in workplace plans by reducing their liability if the insurer cannot meet its financial obligations.

Push back the age at which retirement plan participants need to take required minimum distributions (RMDs) from 70½ to 72, for those who are not 70½ by the end of 2019.

Allow the use of tax-advantaged 529 accounts qualified student loan repayments (up to $10,000 annually).

Permit penalty-free withdrawals of $5,000 from 401(k) accounts to defray the costs of having or adopting a child.

Stretch IRA’s are gone for non-spousal beneficiaries, which means that non spousal beneficiaries must withdraw IRA’s within 10 year of death. This is for deaths after December 31, 2019.

Please contact your Tax Advisor if you have any questions.