The IRS has released new proposed life expectancy tables that would be used in calculating required minimum distributions from both IRAs and employer-sponsored retirement plans. The new tables generally assume longer life expectancies and provide information needed to calculate RMDs for participants living to 120 (the current tables stop at 115). For most clients, the primary impact will be seen in lower required distributions beginning in 2021 Individuals taking RMDs from inherited accounts will also be entitled to switch to the new life expectancy tables under a proposed transition rule, as will those clients currently receiving substantially equal periodic payments. For more information on the RMD rules, visit Tax Facts Online. Read More

The IRS has released proposed regulations that would implement some of the tax reform changes that apply to S corporations that convert to C corporation status. Under tax reform, certain adjustments under IRC Section 481(a) that are required because of the revocation of the S corporation election of an “eligible terminated S corporation” (ETSC) are taken into account ratably during the six tax years beginning with the year of the change (under previous law, most changes had to be accounted for within a one-year period). The proposed regulations’ “no newcomers rule” clarifies that an ETSC is defined as one that (1) was an S corporation on December 21, 2017, (2) during the two-year period beginning on December 22, 2017, revokes its S corporation election, and (3) all of the owners of the corporation on December 22, 2017 are the same as on the day the election is revoked (in identical proportions). The proposed regulations also implement a “snapshot approach” to determining the ratio needed to make allocations under the rules. For more information, visit Tax Facts Online. Read More

In today’s day and age, many clients may participate in more than one employer-sponsored retirement plan. This means that clients must understand the deferral limits that limit the amount that can be contributed on a tax-preferred basis each year. The elective deferral limit is a per-person limit, meaning that each client gets one amount per year (for most clients, the 2019 deferral limit is $19,000, or $25,000 for clients who have reached age 50). This means that clients participating in two 401(k) plans can make $19,000 in pre-tax contributions, spread between the two plans (457(b) plans and 403(b) plans are not subject to this aggregation rule). A second limit, known as an “annual additions limit”, governs the total employer and employee contributions that can be made in a single year. For 2020, that limit is $576,000 and $632,000 for clients 50 and up. The annual additions limit applies to plans offered by a single company, or by companies that are related. Clients participating in two plans sponsored by unrelated companies should be aware that a separate annual additions limit applies to each plan. For more information on the rules governing elective deferrals, visit Tax Facts Online. Read More