The Bipartisan Budget Act of 2018: Changes to Individual Retirement Accounts
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  • The Bipartisan Budget Act of 2018: Changes to Individual Retirement Accounts

    Philip Royce Onward

    Phil Royce, Consultant, Tax Advantaged Accounts, Wolters Kluwer

    Published March 05, 2018

    The Bipartisan Budget Act of 2018 was signed into law on February 9, 2018. The Act includes three provisions related to individual retirement accounts (IRAs).

    Rollover of Improper Federal Tax Levy

    The law gives an affected person the eligibility to roll over assets returned during 2018 or later as the result of an improper federal tax levy on a retirement plan (i.e., IRA or Employer Sponsored Retirement Plan). The rollover can be made to a traditional (including simplified employee pension – SEP), Roth, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE), or beneficiary IRA. The individual has until the tax-filing due date, excluding extensions, for the taxable year in which the money or property is returned to make the rollover. This is similar to the plan loan offset rollover rule that came out of the Tax Cuts and Jobs Act at the end of 2017, with the main difference being the deadline in this case does not include extensions. Additionally, to the extent the levy had been imposed on an IRA, the rollover is not subject to the one rollover per year limitation. Also, if the levy had been applied to a beneficiary of a deceased employer plan participant or deceased IRA owner, such beneficiary is allowed to complete a rollover.

    Example: On May 1, 2018, an individual receives a refund from the IRS for an improper tax levy against the individual’s IRA. Instead of the 60-day rollover rule applying, the individual would have until April 15, 2019, (assuming that is his/her tax-filing deadline for 2018, without extensions) to roll the money over into his/her IRA.

    Importantly, the bill requires the IRS to notify the affected individual of his or her right to make a rollover contribution of the returned assets by the tax-filing deadline.

    California Wildfire Distributions

    The law creates special tax provisions for an individual with a principal abode in a California Wildfire Disaster Area who takes a “qualified wildfire distribution” from an IRA or other eligible retirement plan. The rules mimic the rules for a qualified hurricane distribution.

    Extended Date for Hurricanes Harvey and Irma Disaster Area Declaration

    The law makes technical amendments to the Disaster Tax Relief and Airport and Airway Extension Act of 2017, including changing the date that determines the Irma and Harvey hurricane disaster areas. The date was moved from September 21, 2017 to October 17, 2017. Essentially, this change broadens the area affected by the hurricanes with regard to special tax relief.

    For an opportunity to learn more about IRAs and other tax advantaged accounts, including Health Savings Accounts and Coverdell Education Savings Accounts, consider joining us for one of our IRA, HSA, or CESA Live Streaming events offered on a variety of topics. For more information call us at 1-800-552-9408.

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