What the New Tax Law Means for Retirement Benefits

Retirement Benefits Austin Estate Planning Lawyer

The Tax Cuts and Jobs Act makes sweeping changes to the tax code, but few directly impacting retirement benefits.

Now that the new tax law has passed, it is time to consider how it will affect your retirement benefits.  The new law eliminates Roth recharacterizations and may make qualified charitable distributions even more popular, according to Natalie Choate in “What the Tax Cuts and Jobs Act Means for Retirement Benefits.”

The new law eliminates the right to reverse a Roth conversion, as had previously been allowed.  It is not clear how this will impact conversions that happened in 2017.

There is some good news.  The law’s final draft preserves recharacterization as a method to fix some IRA contribution mistakes.  Additionally, the conference committee’s explanatory statement of the law blesses a technique often referred to as a “back-door Roth conversion.”  This is a tactic sometimes used by an individual who is younger than 70 ½ and who has compensation income, but whose adjusted gross income is too high to permit her to make an annual contribution to a Roth IRA.  The individual instead makes her annual contribution to a traditional IRA, and then converts that traditional IRA into a Roth.  This technique is explicitly blessed by the conference committee.

The new law may also may make qualified charitable distributions even more popular.  The tax code permits individuals older than 70 ½ to transfer up to $100,000 per year from IRAs directly to most types of charities.  This allows IRA owners to satisfy their charitable giving and their RMDs without having either the income or the deduction appear on their tax returns.  Now that the new tax law has substantially increased the standard deduction (therefor reducing the tax benefits of many charitable gifts), more people will take advantage of making charitable contributions from their retirement accounts.

If you would like to learn more about how the new tax law affects you, please do not hesitate to contact our office.

Nielsen Law PLLC provides family focused estate planning to individuals and families in Austin, Round Rock, Cedar Park, and the Central Texas area.  For more information and to learn about our firm, please contact us.

Reference: Morningstar (January 12, 2018), “What the Tax Cuts and Jobs Act Means for Retirement Benefits.”