A bill introduced by GOP lawmakers proposes big changes for taxpayers and retirement savings plans. The Retirement Savings and Other Tax Relief Act of 2018 has received bipartisan support and promises major impact for taxpayers. In fact, there are nine key areas that affect taxpayers’ retirement planning.
Open Multiple Employer Plans.
The new bill would remove the “one bad apple” rule that penalizes an entire multiple employer plan (MEP) for the actions of one employer. In addition, MEPs would no longer have to meet a commonality requirement.
Safe Harbor Plans.
Sponsors’ fiduciary responsibilities remain. However, sponsors are given a little flexibility in choosing annuity providers.
Revisions to Retirement Plan Statements.
At least one retirement plan statement per year must include the annuitized value of the savings in the account.
Repeal of IRA Contribution Age Requirement.
Beginning in 2019, individuals would be permitted to make contributions to IRAs after age 70, if the law passes.
Increase in Deferral Cap for Safe Harbor Plans.
Automatic deferrals in safe harbor 401(k) plans increase from 10 percent to 15 percent.
Small Employers Incentivized to Sponsor Retirement Plans.
To encourage small business retirement plans, the new tax bill proposes an increase in the start-up tax credit for new plans and possibly extending the tax credit for three years.
Relief from RMD.
Currently, IRA and 401(k) plans employ a required minimum distribution (RMD) schedule with payments beginning at age 70 ½. Under the proposed law, smaller accounts would be exempt from the RMD requirement.
Adjustments to Modified Plan Nondiscrimination.
The new bill proposes a reduction in nondiscrimination testing of closed defined benefit plans. In addition, employers that sponsor both defined benefit and defined contribution plans may be reviewed under one testing model.
Added Certain Penalty-Free Withdrawals.
Unlike current rules, the new tax bill would allow penalty-free withdrawals of up to $7500 for childbirth or adoption.