The SECURE Act: Major Last-Minute Retirement Plan Changes

The SECURE Act has ended 2019 with Congress planning to enact a number of changes that will significantly affect your retirement plan. Learn more here.

Despite all the gridlock in Washington, as well as an impeachment, the SECURE Act is poised for imminent passage and signing into law. It changes a number of important retirement plan rules. The act runs over 120 pages, so the experts will be poring over it for some time. Meanwhile, a number of sources have weighed in on what they think are the key provisions. (Note that last-minute alterations and more detailed analysis may lead to additional changes in the coming weeks.)

What Will The SECURE Act Allow?

SECURE Act

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The Society for Human Resource Management listed several changes as particularly noteworthy. The act will allow:

  • An increase in the business tax credit to make setting up 401(k) plans more affordable for small businesses.
  • Unrelated small employers to organize themselves for an “open” 401(k) multiple-employer plan (MEP). This would presumably reduce the costs and administrative work each company would otherwise bear alone.
  • Delay of the 401(k) required distribution from the current age of 70 1/2 to 72. Critics have pointed out that only the well-off are really affected by this, people who can put substantial assets into a 401(k) and don’t need money from the fund immediately.
  • Automatic enrollment of safe-harbor 401(k) plans to increase the cap on automatically raising payroll contributions.
  • A 401(k) safe harbor for in-plan annuities. This provision has also faced criticism, as many industry experts do not believe annuities are a good value in these situations.

The Major Changes Caused by The SECURE Act

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Kiplinger also put together a list of major changes, noting that the act:

  • Removes the age restriction for IRAs. If you work into your 70s and beyond, you can still contribute.
  • Makes it easier for part-time workers to join their employer’s 401(k) plan.
  • Allows a parent to take out up to $5,000 penalty-free from a 401(k) plan for costs connected to a birth or adoption. Kiplinger noted that this may encourage younger workers to start funding retirement plans earlier, as parenthood is on the horizon much sooner than retirement.
  • Eliminates the “stretch” provision. Until now, nonspouse IRA beneficiaries could stretch the required distribution of the IRAs over their own lifetimes. Going forward, with a few exceptions, beneficiaries will have to take full disbursement by the end of 10 years. This could mean a lot more of the inheritance going to the government.

Finally, the government will be repealing the controversial Cadillac tax on high-end health plans. This repeal is part of a year-end spending bill.

Applying The SECURE Act

All these changes will be phased in at different times. There are also exceptions and other subtleties. Whether you’re concerned about your own family’s issues or plans that your company runs, it’s best to keep in close touch with financial professionals to make sure you make a smooth transition to the new rules.

© 2020

Featured image by Elena Saharova on Unsplash

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IRS Releases Radically New Form W-4

The IRS has just released the new Form W-4. Learn about the new changes involved, what it means for your tax filing, and benefit helpful resources.

The IRS has been promising a new version of Form W-4, Employee’s Withholding Certificate, for some months, and it recently published it, with a brief announcement in its e-News service. The form is very similar to a draft version published earlier in 2019. Although the IRS has not yet published extensive new guidance, it did outline the changes in a FAQ list last updated in August 2019.

What's New in Form W-4

At that time, the IRS noted, “Allowances are no longer used for the redesigned Form W-4 to increase transparency, simplicity and accuracy. In the past, the value of a withholding allowance was tied to the amount of the personal exemption. Due to changes in law, currently you cannot claim personal exemptions or dependency exemptions.”

Visual Changes in Form W-4

form W-4

According to the IRS, a few of the visual changes that were made in the last draft shared include:

  • It is now a full page.
  • There are no withholding allowances (which is why the title of the form changed to “Employee’s Withholding Certificate”).
  • Steps 1 through 5 to guide employees through the form.
  • Instructions, worksheets, and tables follow the first page.

Probably the biggest question for both companies and employees is “Does everyone have to fill out the new form?” The answer, according to the August guidance, is no. The IRS says, “Employees who have submitted Form W-4 in any year before 2020 are not required to submit a new form merely because of the redesign. Employers will continue to compute withholding based on the information from the employee’s most recently submitted Form W-4.”

Form W-4 Resources

We will have further updates when the IRS provides additional guidance.

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IRS Publishes Inflation Adjustments for 2020

The IRS has announced the tax year 2020 annual inflation adjustments, including the tax rate schedules and other tax items. Learn how it may affect you.

As it typically does, the IRS has made inflation adjustments for various tax items for the coming year — 2020. More details can be found in Rev. Proc. 2019-44. Below are the adjustments that apply to a wide range of taxpayers.

Inflation Adjustments

The standard deduction for married filing jointly rises to $24,800 for tax year 2020, up $400 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,400 for 2020, up $200, and for heads of households, the standard deduction will be $18,650 for tax year 2020, up $300.

The personal exemption for tax year 2020 remains at 0, as it was for 2019. This elimination of the personal exemption was a provision of the Tax Cuts and Jobs Act.

Marginal rates: For tax year 2020, the top tax rate remains 37% for individual single taxpayers with incomes higher than $518,400 ($622,050 for married couples filing jointly). The other rates are:

  • 35% for incomes over $207,350 ($414,700 for married couples filing jointly).
  • 32% for incomes over $163,300 ($326,600 for married couples filing jointly).
  • 24% for incomes over $85,525 ($171,050 for married couples filing jointly).
  • 22% for incomes over $40,125 ($80,250 for married couples filing jointly).
  • 12% for incomes over $9,875 ($19,750 for married couples filing jointly).
  • The lowest rate is 10% for single individuals with incomes of $9,875 or less ($19,750 for married couples filing jointly).

For 2020, as in 2019 and 2018, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act.

inflation adjustments

Additional Inflation Adjustments

The alternative minimum tax exemption amount for tax year 2020 is $72,900, and it begins to phase out at $518,400 ($113,400 for married couples filing jointly, for whom the exemption begins to phase out at $1,036,800). The 2019 exemption amount was $71,700, and began to phase out at $510,300 ($111,700, for married couples filing jointly, for whom the exemption began to phase out at $1,020,600).

The new maximum earned income credit amount is $6,660 for qualifying taxpayers who have three or more qualifying children, up from a total of $6,557 for tax year 2019.

The qualified transportation fringe benefit now has a monthly limitation of $270. The monthly limitation for qualified parking is the same, up from $265 for tax year 2019.

The dollar limitation for employee salary reductions for contributions to health flexible spending arrangements is $2,750, up $50 from the limit for 2019.

The annual exclusion for gifts is $15,000 for calendar year 2020, as it was for calendar year 2019.

This is not a comprehensive list, and there are subtleties that you should discuss with a professional in the new year.

© 2019

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Latest Release of IRS Crypto Tax Information – Interview with Brad Kimes on XRP

We’ve just had the biggest release of IRS crypto tax information in the past five years. Here’s what to know and how to be prepared as a crypto trader.

This week has been the biggest release of IRS crypto tax information in the past five years. What is going on and what does this mean for you as a crypto trader?

I discuss this big news, and answer important questions it brings up, in my latest interview with Brad Kimes of XRP. If you haven’t already, watch the interview now. 

What Comes Next?

Over the next month, I’ll be writing more in-depth about this latest IRS crypto tax information and what you can do to be prepared as a crypto trader. 

In the meantime, subscribe to my newsletter to be notified of that and other important information regarding US crypto taxes. 

And get a 50% discount code for signing up. 

Beyond IRS Crypto Tax Information

Dealing with crypto taxes requires more than a regular tax accountant. It requires legal expertise about the US tax regulations. That’s why I have a law degree specializing in the international laws of financial regulation including taxation. I’m also an Enrolled Agent

With this background, I’ve written several books that can help you with your crypto taxes.

IRS Publishes Final and Proposed Regs on 100% Depreciation

Learn the latest about depreciation, the TCJA (passed two years ago), and how it’s affected by the latest regulatory changes by the IRS.

The IRS has issued final regulations in September to finalize the proposed regulations issued in August 2018, which implement several provisions included in the Tax Cuts and Jobs Act (TCJA). The proposed regulations contain new provisions not addressed previously.

Depreciation According to the IRS

  • The 100% additional first year depreciation deduction generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property. Machinery, equipment, computers, appliances and furniture generally qualify.
  • The deduction applies to qualifying property acquired and placed in service after September 27, 2017. The final regulations provide clarifying guidance on the requirements that must be met for property to qualify for the deduction, including used property. The final regulations also provide rules for qualified film, television and live theatrical productions.
  • In the proposed regulations, the Treasury Department and IRS propose rules regarding (i) certain property not eligible for the additional first year depreciation deduction, (ii) a de minimis use rule for determining whether a taxpayer previously used property; (iii) components acquired after Sept. 27, 2017, of larger property for which construction began before Sept. 28, 2017; and (iv) other aspects not dealt with in the previous August 2018 proposed regulations.
  • The proposed regulations also withdraw and repropose rules regarding application of the used property acquisition requirements (i) to consolidated groups, and (ii) to a series of related transactions.

Learn More About the IRS and Depreciation

More information is available on the IRS site. To see how these regulations may affect you, contact a qualified professional.

©2019