401(k) Changes

There were also a number of changes that affect employer retirement plans such as 401(k)s.
The first of these is that annuities are now a bit more attractive to include in a retirement plan than previously. Your employer now has a “fiduciary safe harbor,” making it harder to sue them for including lousy annuities in their plan. Also, if the annuity option is removed from the plan by the employer, you no longer need to liquidate the annuity—you can roll it out of the plan “in-kind,” meaning you can move it to an IRA instead of selling it. It is probably still not a great idea to buy one of these, particularly inside a retirement plan.

The second change is a tax credit of up to $5,000 for establishing a retirement plan for a small business. Employers are even allowed to start a plan after the end of the calendar year, as long as the plan only accepts employer contributions. That could allow a lot of procrastinating independent contractor physicians to still make profit-sharing contributions for the previous year.

A third change is that employers can automatically enroll you at a contribution level of up to 15 percent of your income, an increase from the prior limit of 10 percent. This will help people save more money than they otherwise would. Studies show that opt-out plans are much more effective than opt-in plans. There is even another $500 tax credit for employers that add an automatic enrollment option.

A fourth change is that part-time workers are now more likely to qualify for a 401(k)—although it will likely be several years before that benefit really kicks in. Someone who works at least 500 hours a year for three consecutive years (or 1,000 hours in one year) now must be covered.

A fifth change makes things easier for multi-employer plans, allowing multiple small employers to band together for some economies of scale, lowering the costs of running the plan.

529 Change

529s can now be used to pay off student loans, at least up to $10,000 per student. This could potentially allow you to make a 529 contribution, get a state tax deduction or credit for it, and then immediately withdraw the money and pay off student loans.

Kiddie Tax Change

For one brief year, the kiddie tax brackets (ie, the tax on unearned income for minors above $2,200) was equal to the trust tax brackets. It now reverts to previous law where it is equal to the parents’ tax bracket.

These changes are all relatively minor. The most important thing is simply to know what “the rules” are so you can “play the game” to the best of your ability.