New Tax Legislation Effective January 1, 2020

IRA Changes

• The Act removes age restrictions on contributions to IRAs. Now workers over 70 ½ may contribute to  IRAs, not just 401(k)s and SEP accounts.

• It also increases the age at which you are required to take Required Minimum Distributions (RMDs) from 70 ½ to 72, extending the period of tax deferral inside your retirement plan.

  •       Note! If you are under 72 and are already taking RMDs, this change will not apply to you

• However, Qualified Charitable Distributions (QCD) may still be made starting at 70 ½.  QCDs are direct charitable gifts from your IRA. They count towards your RMDs, but are not included in your taxable income.

• The Act requires that inherited IRAs be distributed in their entirety to beneficiaries within 10 years of the IRA owner's date of death.  Distributions may be made at any time within that 10-year period, including within the last year.

However, this change does not apply to the account owner's surviving spouse and minor children, disabled individuals, those who are chronically ill, and those who are not more than 10 years younger than the IRA owner.  Additionally, if you are currently the beneficiary of an inherited IRA, this change will not impact your ongoing RMDs.  In light of these changes, review your existing IRA beneficiary designations and consider whether any changes should be made to reduce the impact of this Act.

401(k) Changes

• Part-time workers may now participate in their employer's 401(k) if they work 1,000 hours in a given year or 500 hours or more in three consecutive years. 

• 401(k)s may now purchase annuities.

Retirement Plans for
Small Employers

• The Act made several changes to further encourage small employers to offer retirement plans, including, adding a new tax credit for employers who use auto-enrollment and increasing the credit for small employer pension plan start-up costs.

• The Act expanded opportunities for small employers to join Multi-Employer Plans (MEPs).

Changes for Individuals

• The Act repeals the Affordable Care Act's 2.3% excise tax on medical devices.

• It also repeals the Affordable Care Act's so-called "Cadillac" tax on high-dollar employer-sponsored health  insurance plans.

Private Foundation Changes

• Private Foundations now have a single tax rate of 1.39% on net investment income. The previous complicated formula to determine if a foundation had to pay a 1% or 2% excise tax has been eliminated.