Momentum - Business to Business Online Magazine MOMENTUM May 2019 | Page 26

TAXING MATTERS T. MARK RUSH, CPA Partner Ham, Langston & Brezina, LLP [email protected] PART 8 of a Series on the New Tax Cuts and Jobs Act H ere’s a look at some of the more important elements of how the new tax law made important changes that affect retirement plans. Except for the disaster-related provisions the changes are effective for tax years beginning in 2018. • Recharacterization of IRA contributions. Once a contribution to a regular IRA has been converted into a contribution to a Roth IRA, it can no longer be converted back into a contribution to a regular IRA, i.e., a recharacterization cannot be used to “unwind” a Roth conversion. • Extended rollover period for plan loan offset amounts. The new law allows the rollover an employee’s loan from his qualified retirement plan, Code Sec. 403(b) plan, or Code Sec. 457(b) to be made any time up to the due date (including extensions) of the employee’s tax return for the year of the deemed distribution. Pre-Act law allowed the employee only 60 days from the date of the distribution. • Qualified disaster distributions taxable over three- year period. Under the new law, a “qualified 2016 disaster distribution” will be included in a taxpayer’s gross income ratably over a three-year period starting with the year it is received, unless the taxpayer elects to have a distribution fully taxed in the year it is received. A “qualified 2016 disaster distribution” is a distribution received from an “eligible retirement plan” in 2016 or 2017 by an individual whose place of adobe was in a Presidentially declared disaster area at any time during 2016, and who sustained an economic loss from the disaster. An eligible plan is an IRA, individual retirement annuity, qualified plan, Code Sec. 403 (a) qualified annuity plan, Code 403 (d) plan, governmental Code Sec. 457 (b) plan, or Code Sec. 403 (b) annuity contract. There is a $100,000 aggregate limit on qualifying distributions for these purposes. • Qualified 2016 disaster distributions not subject to 10% 24 MOMENTUM early withdrawal penalty. In general, unless an exception applies, withdrawals from qualified plans and IRAs before age 59 and a half are subject to a 10% penalty in addition to regular taxation. Under the new law, a “qualified 2016 disaster distribution.” Defined above, will not be subject to the 10% penalty on early withdrawals from qualified plans and IRAs. • Three-years period to recontribute qualified 2016 disaster distributions. Under the new law, qualified 2016 disaster distributions, defined above, can be recontributed to a qualified plan or IRA in which the taxpayer is a beneficiary up to three-years beginning the day after the date of distribution and avoid taxation. A re-contribution is treated as a direct trustee-to-trustee rollover. • Period to amend qualified plans and IRAs for new law changes extended. Under the new law, a qualified plan or IRA can be amended for new law changes retroactively any time up to the last day of the first plan year beginning after 2017 without losing its qualified status for actions taken in compliance with the law changes. Thus, a qualified plan can make a qualified disaster distribution without first amending the plan to allow such a distribution, if the amendment is made retroactively before the end of the extension period.