Tax Overhaul Tweaks Some Rules for Retirement Accounts

Piggy bank
Photo by Aaron Amat / Shutterstock.com

With all the confusion surrounding the recent tax overhaul, you might be wondering if any of the changes will impact how you save for retirement.

Rumors flew about the possibility of the tax code overhaul limiting tax-sheltered retirement saving when the legislation was working its way through Congress. But the final bill, signed into law last month, bears little if any bad news for savers.

The overhaul left the rules governing retirement accounts largely untouched, experts say. There are just a few minor changes you should understand.

What remains the same

The contribution limits and catch-up contribution limits for 401(k) and individual retirement account (IRA) plans were not altered by the overhaul, the Vanguard Group reports.

For example, for the 2018 tax year, the federal government will allow you to save as much money in such accounts as we reported prior to the overhaul’s passage in “Government Says You Can Stash Away More for Retirement in 2018.”

Federal income tax deductions for contributing to retirement accounts also remain in place, according to Vanguard and the H&R Block Tax Institute. These include deductions for money saved in:

What has changed

Most folks are unlikely to be affected by two retirement account changes in the overhaul. Still, it’s good to be aware of them.

Perhaps the biggest tweak is the repeal of Roth IRA recharacterizations.

Owners of traditional IRAs have the option to convert their accounts to Roth IRAs. In the past, they could also reverse that conversion, known as “recharacterizing.” But the tax code overhaul repealed the ability to recharacterize a Roth conversion.

So, starting with tax year 2018, if you convert a traditional IRA to a Roth IRA, you can no longer undo that change. In other words, you’re stuck with the Roth.

The nonprofit Tax Foundation reports this change is estimated to increase the federal government’s revenue by $500 million over a decade.

Another tweak applies only to folks living in 2016 presidentially declared disaster areas. A new special rule allows them to take up to $100,000 from retirement plans and IRAs and be exempt from the 10 percent early withdrawal tax, according to the Tax Foundation.

What’s your take on this news? Share your thoughts with us by commenting below or over on our Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Most Popular
New Retirement Bill Would Help Savers of All Ages
New Retirement Bill Would Help Savers of All Ages

With bipartisan support, this bill could help millions of workers and retirees boost or conserve their retirement savings.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

This iconic dinnerware is prized for everyday use as well as reselling for profit.

3 Colors That Can Ruin Your Car’s Resale Value
3 Colors That Can Ruin Your Car’s Resale Value

Select the wrong color for your next car, and it could depreciate twice as fast as others.

What Inflation Means for Social Security Checks in 2022
What Inflation Means for Social Security Checks in 2022

Recent inflation figures were ugly. Here’s what they hint about the next Social Security benefits adjustment.

20 Things That Are Actually Worth Stockpiling
20 Things That Are Actually Worth Stockpiling

You don’t need a year’s supply of toilet paper to survive an outbreak, but consider stocking up on these items.

9 of the Best Things to Do When You Retire
9 of the Best Things to Do When You Retire

You’ve waited all your life for this moment. Make the most of your retirement.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.