Overview

As a reminder for clients as we approach the busy holiday season, clients who are interested in executing a Roth conversion must first take all RMDs for the year. This rule was included in the final RMD regulations released by the IRS earlier in 2024....

The IRS issued a snapshot addressing certain audit and compliance issues about qualified plan investments in third-party loans. Qualified retirement plans are not explicitly prohibited from investing in third-party loans. The IRS snapshot reminds taxpayers that the plan may not lend money to disqualified persons...

For 2025, the ACA affordability threshold was increased from 8.39% to 9.02%–meaning that employer-sponsored coverage will only be deemed affordable if the employee’s required contribution for self-only coverage does not exceed 9.02% of the employee’s household income. Now, the IRS has announced a decrease in...

The SECURE Act now allows penalty-free withdrawals to cover expenses related to the birth or adoption of a child.  The SECURE Act 2.0 also contained many provisions that expanded taxpayers' ability to access retirement funds without penalty.  One new provision will allow taxpayers to withdraw up to $2,500 each year to cover the costs of long-term care insurance without triggering the 10 percent early withdrawal penalty.  Beginning in 2024, plan participants will be entitled to take penalty-free withdrawals if the participant certifies that they have been a victim of domestic violence by a spouse or domestic partner within the one-year period prior to the withdrawal.  Taxpayers who have been certified by a physician as being terminally ill are also now permitted to take penalty-free withdrawals.<br /> <br /> We asked two professors and authors of ALM’s <em>Tax Facts </em>with opposing political viewpoints to share their opinions about expanding the hardship distribution rules to allow for penalty-free distributions for different reasons.<br /> <br /> Below is a summary of the debate that ensued between the two professors.<br /> <br /> <strong>Their Votes:</strong><br /> <br /> <img class="alignnone size-medium wp-image-62919" src="https://cms-taxfacts.thinkadvisor.com/wp-content/uploads/2024/07/BloinkThumbsUp-300x105.png" alt="" width="300" height="105" /><br /> <br /> <img class="alignnone size-medium wp-image-62921" src="https://cms-taxfacts.thinkadvisor.com/wp-content/uploads/2024/07/ByrnesThumbsDown-300x105.png" alt="" width="300" height="105" /><br /> <br /> <strong>Their Reasons:</strong><br /> <br /> <strong>Bloink:</strong> One of the primary reasons that Americans fail to take advantage of tax-preferred retirement savings options is the fear of needing the funds prior to retirement and incurring penalties on top of ordinary income tax rates for hardship withdrawals.  Expanding the limited list of reasons why a participant can access retirement funds without penalty is key to encouraging increased retirement savings.<br /> <br /> <strong>Byrnes:</strong> Expanding the hardship distribution rules only serves to encourage leakage from these retirement plans.  The early withdrawal penalties exist for a very good reason.  If retirement accounts are simply treated as any other type of savings account, taxpayers are given a powerful tax break without the strong incentive to allow those funds to remain in the retirement account.<br /> <br /> _______________________________<br /> <br /> <strong>Bloink:</strong> The list of reasons for penalty-free retirement distributions is not endless--and participants are required to certify their legitimate need for the funds.  That provides built-in safeguards.  Further, distributions are never tax-free.  We’re only talking about allowing taxpayers to access their own hard-earned funds for legitimate hardship-based reasons.<br /> <br /> <strong>Byrnes:</strong> Plans that allow hardship distributions may now rely on the employee’s certification as to the existence of the hardship and the amount needed.  That essentially means that employees can access their tax-preferred retirement funds for any reason whatsoever.  This is not how tax-preferred retirement accounts are meant to function.<br /> <br /> _______________________________<br /> <br /> <strong>Bloink:</strong> Without these types of hardship expansions, lower-income taxpayers are much less likely to adequately save to fund retirement.  Essentially, this is a type of compromise.  In the end, expanding the explicitly stated reasons for hardship distributions narrows the field and allows employers to provide clear limits on the reasons that penalty-free distributions will be permitted.<br /> <br /> <strong>Byrnes:</strong> Pre-SECURE Act, we already had a list of legitimate reasons for penalty-free withdrawals prior to retirement.  Any expansion does more harm than good in that it gives participants legitimized reasons to drain their retirement savings--and retirement saving is something that we should be trying to increase, which is why the early withdrawal penalty taxes exist in the first place.

by Prof. Robert Bloink and Prof. William H. Byrnes<br /> <br /> With each passing year, the American workforce has become more mobile. While employer-sponsored 401(k) plans are now an incredibly common employment benefit, it’s also incredibly common for employees to move between jobs with increasing frequency. These factors...

The IRS has released the 2025 inflation-adjusted numbers for health FSAs, qualified small employer HRAs (QSEHRAs), long-term care insurance and other valuable benefits. For 2025, the contribution limit for health FSAs will increase from $3,200 to $3,300. The carryover limit will increase from $640 in...

The U.S. Supreme Court has agreed to determine the appropriate pleading standard that will apply in litigation involving the prohibited transactions rules. By way of background, the prohibited transaction rules prevent plan fiduciaries from transacting with certain interested parties unless a prohibited transaction exemption applies....

As unbelievable as it sounds, we're now approaching the busy year-end holiday season. At the same time, IRA owners should be advised about some valuable – and often required – year-end action items for their IRAs. First and foremost, taxpayers who reached age 74 or...

Beginning in 2024 and beyond, employers are entitled to make matching contributions to an employer-sponsored retirement plan based on an employee’s qualified student loan payments because of new options introduced by the SECURE Act 2.0. Employers are subject to certain certification rules to ensure that employers are, in fact, making the student loan payments. Under IRS guidance, employers can independently certify (1) the amount of the loan payment; (2) the date of the loan payment; (3) that the payment was made by the employee.  The Department of Education, however, has adopted new regulations via The Stop Student Debt Relief Scams Act that require student loan servicers to prevent third parties from accessing student borrowers’ data in an effort to prevent fraud.<br /> <br /> We asked two professors and authors of ALM’s <em>Tax Facts </em>with opposing political viewpoints to share their opinions about whether the Department of Education regulations will negatively impact the availability of the employer-sponsored student loan match.<br /> <br /> Below is a summary of the debate that ensued between the two professors.<br /> <br /> <strong>Their Votes:</strong><br /> <br /> <img class="alignnone size-medium wp-image-62920" src="https://cms-taxfacts.thinkadvisor.com/wp-content/uploads/2024/07/ByrnesThumbsUp-300x105.png" alt="" width="300" height="105" /><br /> <br /> <img class="alignnone size-medium wp-image-62922" src="https://cms-taxfacts.thinkadvisor.com/wp-content/uploads/2024/07/BloinkThumbsDown-300x105.png" alt="" width="300" height="105" /><br /> <br /> <strong>Their Reasons:</strong><br /> <br /> <strong>Byrnes:</strong> The Department of Education regulations are almost certain to have a chilling impact on employers' ability to offer the student loan matching option post SECURE 2.0. Student loan servicers are completely unable to provide third parties (meaning employers) with information about a student borrower's debt. That makes it impossible for the employer to verify that the employee is actually making valid student loan payments as required by law.<br /> <br /> <strong>Bloink:</strong> These DOE regulations serve a critical function of protecting access to student borrowers' private information. While they may present an administrative hurdle for employers in offering the student loan match, it's certainly not a burden that is insurmountable or severe enough that it will deter employers from offering this valuable new benefit option.<br /> <br /> ___________________________<br /> <br /> <strong>Byrnes:</strong> Without clearly enumerated exceptions, the student loan matching option will become yet another new employment benefit option that employers are simply unwilling to undertake given the risks. Employers simply won’t be willing to take the risk that their entire program could be disqualified based on failure to properly certify that the employer is making valid student loan payments as required.<br /> <br /> <strong>Bloink:</strong> We have to weigh the benefits against the burdens in situations like this where we have potentially conflicting sets of regulations. We should also remember that employers can request documentation directly from the employee and still satisfy their certification obligations under the current IRS guidance. Self-certification is a completely valid option that eliminates the problems posed by the DOE’s restrictions on granting third parties access to private information.<br /> <br /> ___________________________<br /> <br /> <strong>Byrnes:</strong> When employees are required to manually provide their information, we greatly increase the risk that errors will occur. It’s almost certain to happen. The risk of mistakes is likely to deter employers from offering the student loan matching benefit. The added burden of self-certification may even stop employees from taking advantage of the new option. The simpler we can make the process, the more likely it is that participation will be widespread. Service providers are in the best position to certify that any given employees is really paying down their student debt.<br /> <br /> <strong>Bloink:</strong> It's entirely possible to set a workable application process for trusted third parties that will allow employers the access to information they require to verify compliance with the student loan matching rules. Protecting student borrowers’ personal information is a necessary and valuable step to preventing fraud. We can’t simply abandon the DOE’s protective provisions because it might be inconvenient for student borrower-employees to independently provide their employers with the documentation necessary to satisfy the IRS’ certification requirements.

Now that the October 15 deadline for fixing excess IRA contributions has passed, taxpayers who have missed the deadline may be wondering whether they still have options.  The excess contribution can still be withdrawn from the IRA, but the client will have to pay a...