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Retirement Savings Left Largely Untouched by Tax Reform
Source:
taxfoundation.org
- Jan 15, 2018
While rumors flew around Washington in the fall that the Tax Cuts and Jobs Act would dramatically impact retirement accounts, the plan has made only a few minor modifications. Under the current system, retirement plans are rightly subject to only a single layer of taxation, but they are governed by numerous confusing rules and restrictions. Though some of the new changes ease restrictions, the need to reform the disorganized structure of retirement savings remains.
Plan Loans and Offsets
Some plans may offer participants the option to take out a loan, subject to several Internal Revenue Service (IRS) restrictions. Generally, the loan must be paid back within five years with quarterly payments. Loans that are not paid back are deemed distributions and are treated as early withdrawals subject to income tax and possibly additional early withdrawal tax. If an employee is terminated and has an outstanding loan, the outstanding loan amount is “offset” from the retirement account balance. To avoid the offset amount being treated as a distribution, an individual may come up with funds elsewhere to replace the offset amount when rolling over the old account into a new account.
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Category: General Business
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