New Federal Tax Law: A Blessing for About-to Retirees By Bill Eager
Recently, Congress has passed an enormous document of federal tax law, and President Trump signed it. This law incorporates several provisions that are beneficial to those who have reached the age of retirement. In this article, we will gain insight into some provisions that are in the interest of retirees.
Required Minimum Distributions (RMD)
Previously, once the retiree had to reach the age of 70 ½, they began receiving distributions from their retirement plans, and this was known as RMD.
Does that make sense? The answer is NO, as per the analysis of the experts. They spelled out that there was a class of people who wanted to work after the age of 70, and under such circumstances, they might not need those funds so early. In addition, they avoided retirement distributions to be taxed at a higher rate and to be added to their wage income.
Moreover, there was another class of people who preferred delaying their retirement plan distributions until the time they required such money to cover unforeseen future expenses such as healthcare needs. As a matter of fact, keeping the retirement funds in the exempt plan bears fruit to retirees.
Is there any change to the new RMD? Yes, there is. First, the RMD age limit of the retiree has been increased from 70 ½ to 72 ½. Additionally, the changes have also been made to the old life expectancy tables so that they can reflect today’s much longer life expectancy.
Many experts report that the new law has a significant positive impact on retirees. If you are reaching the retirement age, the new law is invaluable to you.
In the subsequent sections, we will explore how new federal tax law supports child care and foster care.
Child Care Amenities
Typically, if someone receives a distribution from their retirement plan, it would be a taxable income in the year they receive it. Plus, if they get any distribution from the retirement plan before they reach the age of 59 ½, such distribution would be fined up to 10%, but some certain and limited exceptions might be there.
On the other hand, the new law creates an exception to the penalty for specific adoption and qualified expenses. For example, as stipulated in the law, a retiree can get $5,000 per child or adoption as a distribution before reaching the age of 59 ½. Under such circumstances, they have been exempted from paying a 10% penalty and would spend the distribution funds on childbirth or adoption. Do you think this news is exciting for parents? Yes, many parents would bear fruit from this provision in federal law.
Foster Care Amenities
The old federal law stipulated that the amount received by the foster care provider was exempted from the tax. This was a nightmare for foster care providers because, due to not having the taxable income, they could not take part in the IRA and other retirement plans. For this to be done, foster care providers must first have the income, which is taxable, and allow them to participate in the IRA and other retirement plans.
The good news is, as per the new law, the qualified foster care providers can participate in the IRA or qualify for the retirement plan as if they had a taxable income. Unlike the old provision, which disallows them to make contributions for their retirement, the new law allows them to do so.
Retirement without a plan is not a piece of cake. In addition, facilitation on the part of government is also essentials for older. This is the reason the US Congress passed the new federal tax law whereby favor has been given to retirees in terms of RMD, child care, and foster care.