Tax Update: Retirement Planning

by: Smith and Howard Wealth Management

The federal government spending package that was signed into law on December 20, 2019 extends over 30 income tax provisions that had already expired or were due to expire at the end of 2019. The agreement on the spending package also includes the Taxpayer Certainty and Disaster Tax Relief Act (“Disaster Act”) and the Setting Every Community Up for Retirement Enhancement (SECURE) Act.

The SECURE Act is primarily intended to encourage saving for retirement, though it’s not entirely favorable to taxpayers. Most provisions took effect January 1, 2020. Among the most significant:­

  • Elimination of the age limit (70½ ) for making traditional IRA contributions, so that anyone can contribute as long as they’re working, matching the existing rules for 401(k) plans and Roth IRAs.
  • Increase of the age at which taxpayers must begin to take required minimum distributions (RMDs) from 70½ to 72. The old rule still applies to those who turned 70½ in 2019 (born on or before June 30, 1949) – they will have to begin RMDs this year. However, those born on or after July 1, 1949 can now wait until they turn 72 to start the RMDs.
    • This change creates an additional two-year gap before RMDs begin, which may provide years of lower reportable income where ROTH conversions may be attractive.
  • Elimination of the “stretch” RMD provisions that have permitted beneficiaries of inherited retirement accounts to spread the distributions over their life expectancies. Beneficiaries now must completely empty the inherited IRA within 10 years. However, those beneficiaries are not required to take out annual installments within 10 years, which allow for strategic tax planning of IRA withdrawals based on that year’s taxable earnings. Spousal beneficiaries may continue to roll account balances from spouses into their own accounts and use the uniform lifetime table for distribution purposes. Beneficiaries that are chronically ill, disabled or minor children, and any beneficiary not more than 10 years younger than the decedent, are still allowed to take RMDs in their Inherited IRA based on their life expectancy.
  • Those that are already receiving RMDs from their IRAs or Inherited IRAs started before 2020 are grandfathered in and not affected by the rule changes in the SECURE Act.

Some other highlights:


Here are some of the most widely relevant breaks that have been extended through 2020:

  • The exclusion from gross income of discharge of qualified principal residence indebtedness.
  • The treatment of mortgage insurance premiums as qualified residence interest for itemized deduction purposes – as part of the efforts to revive the housing market, Congress passed a law allowing a tax deduction for the cost of premiums for mortgage insurance (PMI) for homes and vacation homes. Under the law, PMI payments were lumped together with deductible home mortgage interest on Schedule A. The provision was renewed retroactively for 2017 and will now be extended to 2020.
  • The reduction in the medical expense itemized deduction floor to 7.5% of adjusted gross income.
  • The above-the-line deduction for qualified tuition and related expenses.
  • The New Market Tax Credit program and empowerment zone tax incentives have been extended through 2020.
  • The employer tax credit for paid family and medical leave has been reinstated for another year.
  • The Work Opportunity Tax Credit (WOTC) will be extended through 2020, continuing to give employers an incentive to hire disadvantaged employees.
  • Retroactive reinstatement of energy efficient improvement first year deductions under IRC 179D.  This provision allows for up to $1.80 per square foot deduction for energy efficient building envelope, mechanical and lighting improvements placed into service before January 1, 2021.
  • Energy efficiency credits for certain nonbusiness property.
  • Expansion of qualified expenses for purposes of 529 account rules to include post 2018 costs for “registered apprenticeships” and up to $10,000 of qualified student loan repayments.

The extension of some breaks that had expired at the end of 2017 but that now have been retroactively revived means that some taxpayers should consider filing amended returns for 2018.

Disaster Relief

The “Taxpayer Certainty and Disaster Tax Relief Act of 2019″ Disaster Act provides relief for taxpayers affected by disasters in 2018 through January 19, 2020. A few items to note regarding the Disaster Act include:

  • Automatic 60-day extension for any tax filing for taxpayers in federally declared disaster areas.
  • Repeal of medical devices (2.3% gross receipts) tax for sales occurring after 12/31/19.
  • Repeal of high cost “Cadillac” plan tax.
  • The provision clarifies the private foundation excise tax on investment income. A 1.39% tax would replace the current two-tiered tax and is effective for tax years beginning after the date of enactment of the Act (January 1, 2020).


Congress repealed a section of the 2017 tax law that required associations and other tax-exempt organizations to pay a 21 percent unrelated business income tax (UBIT) on employee benefits, such as parking and transportation. As Associations Now reports, Congress recognized that nonprofit employee benefits like parking and transit assistance are not a trade or business conducted for the production of income and therefore should not be regarded as taxable under the UBIT statute.

Learn more

This is just a brief overview of some of the most relevant provisions. Contact a member of Smith and Howard Wealth Management at 404-874-6244 to learn more about these and other changes that may affect you.

Unless stated otherwise, any estimates or projections (including performance and risk) given in this presentation are intended to be forward-looking statements. Such estimates are subject to actual known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from those projected. The securities described within this presentation do not represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that an investment in such securities was or will be profitable. Past performance does not indicate future results.