How the Tax Cuts and Jobs Act affects your savings plans

Individual savings plans can be impacted by new tax law


The Tax Cuts and Jobs Act of 2017, enacted in December 2017, touched so many pieces of our tax law, the Internal Revenue Service is still issuing guidance on how the reforms will impact individuals. The 400-page bill was the biggest tax overhaul in two decades and its impacts on individual taxpayers are wide-ranging. This is the fourth part of a series in how the tax reform bill can affect you with a focus on your savings plans. As the IRS implements this major tax legislation, the IRS will issue more updates and resources so check with your local tax preparer if you have any questions.


IRA Contributions

The tax reform allows you to treat a regular contribution made to a Roth IRA or to a traditional IRA as having been made to the other type of IRA. This is called a recharacterization.

In addition, a regular contribution is the annual contribution you’re allowed to make to a traditional or Roth IRA: up to $5,500 for 2018, $6,500 if you’re 50 or older. It does not include a conversion or any other rollover.

To recharacterize a regular IRA contribution, you tell the trustee of the financial institution holding your IRA to transfer the amount of the contribution plus earnings to a different type of IRA (either a Roth or traditional) in a trustee-to-trustee transfer or to a different type of IRA with the same trustee. If this is done by the due date for filing your tax return (including extensions), you can treat the contribution as made to the second IRA for that year (effectively ignoring the contribution to the first IRA).


ABLE Savings Accounts

The reforms also enable eligible people with Achieving a Better Life Experience (ABLE) accounts to put more money into their ABLE account and possibly qualify for the Saver’s Credit.

As a result, this allows ABLE beneficiaries and certain family members to roll money from 529 plans into ABLE accounts, which are state-offered accounts that help people with disabilities and their families pay for disability-related expenses. Distributions are tax-free to the beneficiary if used to pay qualified disability expenses. These may include housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology and personal services.


Health Savings Accounts

For 2018, taxpayers with family coverage under a High Deductible Health Plan may treat $6,900 as the maximum deductible HSA contribution.

A change in the inflation adjustment calculations for 2018 under the Tax Cuts and Jobs Act, reduced the maximum deductible HSA contribution for taxpayers with family coverage under an HDHP by $50, to $6,850.

If you have any questions about how the Tax Cuts and Jobs Act of 2017 might affect you, contact Dempsey Vantrease & Follis today.