What’s in the Tax Bill That Just Passed Into the House?
The House of Representatives recently passed a package of laws that could change the way retirement savings are accumulated. This, of course, if the Senate passes the new tax changes as they are, which, according to experts, is unlikely .
The biggest changes include permanent tax cuts passed last year for individuals (currently ending in 2025), expansion of retirement and education accounts, and the creation of tax-exempt universal savings accounts to accompany retirement accounts.
Individual tax incentives
The Family and Small Business Tax Cuts Act of 2018 will provide a permanent double standard deduction and increased tax credit for children, which were part of the original Tax and Jobs Cuts Act passed last year. The original tax bill did not provide for permanent cuts in individual taxes to comply with Senate budget harmonization rules (in the original bill, business cuts were made permanent); it would aim to fix it.
Simplifying retirement
Things get more interesting in the Family Savings Act. This bill will remove the 70 1/2 age limit for IRA contributions and exempt those with less than $ 50,000 in accounts from the Mandatory Minimum Distribution (RMD), which starts at 70 1/2 (again, this is for IRA and 401 (k) s – Roths currently do not have these requirements), and reduce RMD for those with more on the balance sheet.
In addition, families will be allowed to withdraw up to $ 7,500 without penalty from retirement accounts if they are used to pay for items for a new child (including foster children).
Universal savings accounts
The bill also proposes universal savings accounts that would be similar to Roth’s IRAs: people would be allowed to save and invest up to $ 2,500 a year with after-tax money, and withdrawals and investment returns could be tax-exempt for almost everyone. any reason. Basically, this will be the stroller savings account that Lifehacker wrote about earlier . In theory, this is a pretty smart idea that will help narrow America’s savings deficit and reduce reliance on 401 (k) loans, which carry hefty fines.
One thing to keep in mind, as Mark Erie points out in The Hill , is that “high-income people everywhere will take advantage of this new tax credit — largely without additional savings — by moving taxable savings into a new vehicle.” Meanwhile, low-income people will find it harder to save time with a universal savings account in addition to a retirement account, although they will certainly benefit them as well.
There are a few more things the bills do for small businesses (like making it easier for small businesses across industries to participate in a unified retirement plan to lower fees), but simplifying deferred retirement accounts and adding universal savings accounts are headlines for most people. Now it’s up to the Senate.