Ask an Estate Planning Lawyer in Paramus, NJ: Retirement Plans Under Tax 2.0

Even though the 116^th Congress appears to be divided on a host of issues, there are some areas in which there is bipartisan support, and bills are getting approved and passed into law. For example, in December 2018, the First Step Act, a criminal justice reform bill, was signed into law by the President after approval from both chambers of Congress. Another area in which bipartisan support is possible is with a trio of bills, referred collectively as “Tax Reform 2.0.” One of these bills, titled the Family Savings Act of 2018, or FSA, includes numerous provisions relating to employer-sponsored retirement plans that may enhance an individual’s estate plan.

The following are two provisions of the proposed FSA Bill that could impact your estate plan. Contact your estate planning lawyer in Paramus, New Jersey to determine how these proposed changes could affect your estate plan.

Withdrawals From Retirement Plans for Birth of Child or Adoption

The FSA proposes to provide an exception from the 10% early withdrawal tax in the case of a “qualified birth or adoption distribution” from an applicable eligible retirement plan. For now, applicable eligible retirement plans include qualified retirement plans (other than defined benefit plans), 403(b) plans, governmental 457(b) plans, and IRAs. There is a monetary cap on the amount of money that can be withdrawn to avoid the 10% early withdrawal tax. The qualified birth or adoption distribution cannot exceed $7,500 during the one-year period beginning on the date of birth of the participant’s child, or finalization of a legal adoption of an eligible child by the participant. An eligible child is any individual under the age 18 or who is physically or mentally incapable of self-support.

Lifetime Income Investments

Lifetime income funds, according to ICMA-RC, are annuity products that provide lifetime income to an individual based on the assets he or she has accumulated. These types of plans are typically available and offered to individuals employed in the public sector in employer-sponsored retirement plans. Currently, if a retirement plan no longer offers a lifetime income investment fund, a participant may be required to liquidate the investment and pay a surrender charge.

The FSA bill proposes to eliminate the surrender charge by permitting a participant to roll-over a qualified distribution of the lifetime income investment into a direct trustee-to-trustee transfer, to another employer-sponsored retirement plan, or an IRA within the 90-day period ending on the date the lifetime income investment fund is terminated or ends.

Review Your Estate Plan Annual to Take Advantage of Favorable Changes to the Tax Code

Each year, individuals should review their estate plans and determine if there are any provisions that need to be changed. Ask an estate planning lawyer in Paramus, NJ to review your current estate plan and make recommendations for changes or improvements that may benefit your descendants. To request a consultation with an estate planning attorney in Paramus, NJ, click here or call (201) 690-1642 today. The Giro Law Firm helps New Jersey families with their estate planning, Medicaid planning, special needs, probate, veterans’ aid, and family law needs.