The President has given the go-ahead on a new federal tax law, which was signed off on around mid-December of last year. The provisions within this new law can be quite beneficial for many who are nearing or are in retirement.
In this article, we go over a few of these provisions and how they can make a positive impact on you.
Required minimum distribution. Also known as
RMDs, this provision made those that reached the age of 70 and a half receive a distribution from their IRAs regardless if they needed it or not.
Those that were working past this age limit would still need to take RMDs, which could put them at a higher tax rate.
Some people just do not wish to tap into their retirement accounts until they need to in their retirement. Also, the longer they can keep their savings in their account, the more money they can gain through compound interest.
The new tax law changes the age limit to 72 and a half. The expectancy life tables have also been revised to show a longer anticipated life expectancy.
This can allow many to delay a year from having to take money from their retirement accounts, which can enable them to make more money and avoid adding more earnings to their taxable income.
Child care. Sometimes, new parents need to touch some money they have in their retirement accounts due to the event of the birth or adoption of their child.
In most cases, these withdrawals are made before 59 and a half, which means they will face a 10% tax penalty.
The new tax law will allow eligible parents to be exempted to a certain extent for certain expenses related to the birth or adoption of their child.
Both parents can each take out $5,000 each from their retirement account and will not be liable to the 10% tax penalty.
Foster care. Under old tax laws, a foster care provider received money from the government that was not taxable.
Those that solely made a living off providing foster care were unable to make contributions to a retirement plan because they did not have any taxable earnings. Retirement plans generally have a requirement that the individual must have taxable earnings.
Under the new law, certain qualified foster care providers will be allowed to create or participate in a retirement plan, which enables them to make contributions toward their retirement.
However, these contributions will not be deductible as they are still getting non-taxable earnings.