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Happy 2020! Notable U.S. Tax Law Changes
In the waning days of 2019 the U.S. Congress and the President came to an agreement on some tweaks to U.S. tax laws, part of the 2019 "SECURE Act." Here are the notable changes (as I see it):
1. Many types of U.S. tax advantaged retirement accounts, such as Traditional IRAs, required withdrawals starting no later than age 70 1/2 -- the so-called "Required Minimum Distributions" (RMDs). This age is now raised to 72 (for those age 70 1/2 on or after January 1, 2020).
2. The age 70 1/2 limit for making Traditional IRA contributions is abolished. You can now make Traditional IRA contributions at any age assuming you otherwise qualify.
3. You can now withdraw up to $5,000 from U.S. tax advantaged retirement accounts, such as a 401(k) or IRA, without penalty upon the birth or adoption of a child. (For traditional retirement accounts you'll still have to pay ordinary income tax on the distribution since contributions are pre-tax.) This early withdrawal option gives new parents a little more financial flexibility and liquidity. You can even roll the $5,000 into a 529 plan for your new little one's benefit, if you wish.
4. Effective January 1, 2019 (i.e. retroactively), you can use 529 plan funds for certain apprenticeship programs and to pay off up to $10,000 of student loan debt per individual.
All of these changes are positive except perhaps to the U.S. Treasury to a small degree. If you have or will have a U.S. tax advantaged retirement savings account (401K, IRA, etc.) and/or U.S. tax advantaged education savings account (a 529 plan), perhaps from an overseas stint working in the United States, you too can benefit from these changes.
The increase to age 72 for RMDs gives you more flexibility to decide how and when you'd like to make withdrawals and/or conversions/rollovers. I personally like this one a lot because it'll give me 18 more months to draw down other, non-tax advantaged assets before tapping a Traditional 401(k), which should result in a little bit more tax savings when the time comes (long from now).
The expansion of 529 plans to cover student loan repayments, up to $10,000 per student, is quite helpful to undergraduates who qualify for Direct Stafford Loans. That type of student loan does not accrue interest and does not require any payments while the student is continuing his/her higher education, all the way through graduate school if there's no substantial break between undergraduate and graduate studies. So 529 plan custodians -- usually parents and other relatives -- can let a portion of those accounts grow tax free even longer and disburse the final $10,000 just before the 6 month grace period ends to help their beneficiaries repay all or most of their Direct Stafford Loans. Other types of student loans are much less attractive, but the combination of a 529 plan with Direct Stafford Loans (for those who qualify) is pretty special.
In the waning days of 2019 the U.S. Congress and the President came to an agreement on some tweaks to U.S. tax laws, part of the 2019 "SECURE Act." Here are the notable changes (as I see it):
1. Many types of U.S. tax advantaged retirement accounts, such as Traditional IRAs, required withdrawals starting no later than age 70 1/2 -- the so-called "Required Minimum Distributions" (RMDs). This age is now raised to 72 (for those age 70 1/2 on or after January 1, 2020).
2. The age 70 1/2 limit for making Traditional IRA contributions is abolished. You can now make Traditional IRA contributions at any age assuming you otherwise qualify.
3. You can now withdraw up to $5,000 from U.S. tax advantaged retirement accounts, such as a 401(k) or IRA, without penalty upon the birth or adoption of a child. (For traditional retirement accounts you'll still have to pay ordinary income tax on the distribution since contributions are pre-tax.) This early withdrawal option gives new parents a little more financial flexibility and liquidity. You can even roll the $5,000 into a 529 plan for your new little one's benefit, if you wish.
4. Effective January 1, 2019 (i.e. retroactively), you can use 529 plan funds for certain apprenticeship programs and to pay off up to $10,000 of student loan debt per individual.
All of these changes are positive except perhaps to the U.S. Treasury to a small degree. If you have or will have a U.S. tax advantaged retirement savings account (401K, IRA, etc.) and/or U.S. tax advantaged education savings account (a 529 plan), perhaps from an overseas stint working in the United States, you too can benefit from these changes.
The increase to age 72 for RMDs gives you more flexibility to decide how and when you'd like to make withdrawals and/or conversions/rollovers. I personally like this one a lot because it'll give me 18 more months to draw down other, non-tax advantaged assets before tapping a Traditional 401(k), which should result in a little bit more tax savings when the time comes (long from now).
The expansion of 529 plans to cover student loan repayments, up to $10,000 per student, is quite helpful to undergraduates who qualify for Direct Stafford Loans. That type of student loan does not accrue interest and does not require any payments while the student is continuing his/her higher education, all the way through graduate school if there's no substantial break between undergraduate and graduate studies. So 529 plan custodians -- usually parents and other relatives -- can let a portion of those accounts grow tax free even longer and disburse the final $10,000 just before the 6 month grace period ends to help their beneficiaries repay all or most of their Direct Stafford Loans. Other types of student loans are much less attractive, but the combination of a 529 plan with Direct Stafford Loans (for those who qualify) is pretty special.