The recently enacted Tax Cuts and Jobs Act (the Act) will impact many taxpayers. Here is what employers need to know about how the tax reform affects retirement plans.
When an employee that has a plan loan leaves their employer the outstanding balance becomes a taxable distribution unless the employee repays the loan or contributes the loan balance to an IRA within 60 days. The Act extends the time from 60 days to the due date of the employee’s tax return, including extensions. This change is effective after December 31, 2017.
Roth IRA Conversions
Individuals are permitted to convert a traditional IRA to a Roth IRA. In doing so the individual would be required to pay tax at the time of conversion. Previous tax law permitted recharacterization of the conversion if the individual determined they couldn’t pay the tax due as a result of the conversion. This recharacterization back to a traditional IRA had to be made by the due date of the individual’s tax return, October 15 of the following year. The Act removes this unwinding option. This change is effective for taxable years after December 31, 2017. Therefore, conversions during 2017 are still eligible for recharacterization if made before October 15, 2018.
Some were concerned that revisions to retirement provisions could have been an avenue for paying for some of the tax cuts. In the end this wasn’t the case and the changes to retirement provisions were minor. However, we expect that this will remain an area for conversation especially when the government explores discretionary income.
Each employer’s situation is different, resulting in different outcomes of how retirement plans will be affected. In addition, the answer could change as additional guidance is issued by the IRS. Barnes Dennig is here to help assess your specific tax situation. For additional guidance please contact us here or call 513-241-8313.