What Does Tax Reform Mean for 401(k) Savers?

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It’s been little over two months since President Donald Trump signed the Tax Cuts and Jobs Act of 2017 into law. The new regulations went into place January 2018, and you may have noticed a change in your paycheck as soon as February. Of course, your tax filing this April won’t change, as that will still be for the 2017 tax year. While the amount of media coverage focused on the new law was enough to cause a state of panic, in reality, the law won’t have much of an impact on 401(k)/403(b) savings. Here are the important changes you’ll want to be aware of for the 2018 tax year:

"In reality, the law won’t have much of an impact on 401(k)/403(b) savings."

To Roth or Not to Roth? 

Hopefully you have at least considered designating all or a portion of your 401(k) contributions as Roth, assuming it is available within your plan (Not sure what "Roth" means?). However, with the new tax law taking effect, now is a great time to reevaluate your strategy to see if you should increase your Roth contributions, especially if your blended tax rate decreased. 

"If your taxes are lower in 2018 than they were in 2017, it might make sense to bite the bullet and pay the taxes now, via Roth contributions."

Remember, the goal is to pay as little in taxes as possible. If your taxes are lower in 2018 than they were in 2017, it might make sense to bite the bullet and pay the taxes now, via Roth contributions.

 

401(k) Loan Payback Just Got Easier

First and foremost: 401(k) loans are (almost always) a bad idea! And HERE is why. But, the new tax rule does make 401(k) loans easier to pay back. In the previous law, if you lost your job, you’d usually have 60 days to pay back an outstanding 401(k) loan. If that wasn’t possible, you’d risk owing income taxes on the outstanding balance, as well as being hit with a 10% penalty. The new tax law gives you until the tax-filing deadline to pay back the loans, so in the case of loans taken out after January 1, 2018, you’d have until April 17, 2019.

"The new tax law gives you until the tax-filing deadline to pay back the loans, so in the case of loans taken out after January 1, 2018, you’d have until April 17, 2019."

The new law gives workers a bit more time to pay the loan back.  Now, when you leave a job, you have until April (or possibly October, should you file an extension) of the following year to pay it back, avoid the tax hit, and preserve your retirement savings. If you have other retirement questions we're here to help. 

 

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