On December 20, 2019, President Trump signed into law the Consolidated Appropriations Act, 2020. The Act’s main purpose was to authorize continued government spending, thus preventing a shutdown like we saw last year. However, the spending bill also included many far-reaching tax and retirement plan provisions. Below are the highlights.
Several tax provisions that had previously expired were resurrected retroactively and extended through 2020, including:
7.5% adjusted gross income (AGI) floor for medical expense deduction
Tuition and fees deduction
Mortgage insurance premiums deduction
Exclusion of qualified principal residence indebtedness from gross income
7-year recovery period for motorsports entertainment complexes
New markets tax credit
Credits for nonbusiness energy property, qualified fuel cell vehicles, alternative fuel vehicle refueling property and energy efficient commercial buildings
The Work Opportunity Tax Credit (WOTC) and credit for employers who provide paid family and medical leave were also extended through 2020. These credits were set to expire at the end of 2019.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act was bundled with the spending bill and includes many changes that impact retirement plans. Most of the changes take effect in 2020 and include:
RMD age is increased from 70 ½ to 72.
70 ½ age limit for traditional IRA contributions is eliminated.
“Stretch” distribution option for non-spouse inherited IRAs is replaced with a 10-year distribution requirement unless certain exceptions apply.
Up to $5,000 can be withdrawn from an IRA penalty free to pay for qualified birth or adoption expenses.
New tax credits for small employers using auto-enrollment retirement plans
Increased tax credits to assist small employers with retirement plan start-up costs
Small employers have easier access to pooled multiple employer plans (MEPs).
Long-term part-time employees are now eligible to participate in employer 401(k) plans.
“Kiddie Tax” on certain unearned income of children reverts back to old rules which use the parents’ tax rate – for tax years beginning after 2019.
529 college savings plan funds can be used for costs associated with certain apprenticeship programs. 529 funds can also be used to pay down student loans, capped at a total of $10,000.
Excise taxes on high cost employer-sponsored health insurance (“Cadillac”) plans are repealed.
Have questions about how these changes could impact you? Contact us today.