For Individuals,For Plan Sponsors,Retirement Savings Plans,Custom

Retirement Related Provisions of Tax Reform 2.0 Released

October 1, 2018

On Sept. 13, 2018, the House Ways and Means Committee voted along party lines to move forward three pieces of proposed legislation as part of "Tax Reform 2.0," which Ways and Means Chairman Kevin Brady (R-Texas) views as the sequel to last year's Tax Cuts and Jobs Act.

The three proposed bills are:

The retirement-related provisions of Tax Reform 2.0 are found in the Family Savings Act of 2018, which contains a number of provisions similar to proposed legislation H.R. 5282/S.2526 - Retirement Enhancement and Savings Act of 2018. Retirement-related provisions of interest to governmental plan employers and employees include:

  • Modification of pick-up contribution rules. The bill would expand the ability of governmental employers to offer employees a choice between two benefits (e.g., traditional defined benefit plan or defined contribution plan) without violating the "pick-up" contribution rules.
  • Penalty-free withdrawals, and allowed repayment, of up to $7,500 from retirement plans in connection with a birth or adoption.
  • Exemption from required minimum distribution rules for individuals with aggregate accounts (IRA, 403(b), 457(b), and 401(a), but excluding defined benefit plans) not exceeding $50,000.
  • Universal savings account. The bill would create a new tax-preferred savings vehicle taxed like a Roth IRA, but with no penalty for withdrawal prior to retirement. There would be an annual contribution limit of $2,500.
  • Expansion of 529 plans,  including to allow up to $10,000 to be distributed to repay student loans.
  • Repeal of maximum age, currently 70½, to make traditional IRA contributions.
  • Portability of lifetime income investments. The bill would allow guaranteed income products to be distributed to employees as an IRA if the product is discontinued by the plan.

Passage of any legislation is uncertain, particularly in an election year, and modifications and amendments are likely.

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