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You Asked, We Answered: Tax Cuts and Jobs Act of 2017 and its Effect on Retirement Plans

tax-bill-retirement-account-job-actsEstimated reading time: 7 minutes

For our first webinar of the year, we discussed The Tax Cuts and Jobs Act of 2017 and how it will affect your retirement savings. Participants who joined our national webinar had the opportunity to ask John Paul Ruiz, our Director of Professional Development, questions regarding their retirement plans.  Continue reading to see what types of questions were answered: 

Q: If a Home Equity Loan Debt is used to carry a rental property, is that interest still deductible going forward?

A: It is our understanding that all home equity line of credit interest is no longer deductible regardless of whatever it's used for in 2018.

Q: Will all the changes on tax rates reductions (10% or 12% ) apply to 2018 income only?

A: Yes. The new marginal rates will apply beginning of the 2018 tax year.

Q: Can an individual over 59.5 years of age make "catch-up" contributions to their IRA in 2018 for previous tax year (esp. before 2017)? This is where no funds were contributed to the IRA for the tax year in question, in the past.

A: Contributions for past years may not be made up from before 2017. You can only make catch up contributions for 2017 and 2018.  

 

Q: Are contributions to 529 Plans deductible? Or are the earnings on the plan's principal deductible?

A: We don’t believe 529 Plan contributions are tax deductible. You can find more information regarding 529 Plans on Saving for College's website here. 

 

Q: Do the extended rules for IRA distributions from January 2016 through 2018 apply to distributions from a Texas Tomorrow Guaranteed Tuition Plan?  For example, such as the 10% penalty or extended time period to rollover the plans?

A: The best way to find out is to check with your retirement plan’s administrator.

 

Q: If your Self-Directed Traditional IRA loses fair market value - is there any tax relief?

A: No. In any speculative investing in a tax-deferred account, loss in your investment is not deductible. The only special rules is if the loss is because the value of your investment goes below your basis. Check with your tax advisor regarding this rule.

 

Q: Can I give $50K to my brother to use for his investments?  Am I taxed on the gift? Or is there a better way to "give" him the $50K?

A: There is an IRS publication 950  that explains gifting rules. The section that pertains to this is the annual gift exclusion.

 

Q: I opened an HSA last year and am 60 years old. I would like to make maximum contributions until I reach age 65. I would like to let the account build up. Am I forced to take distributions from the account? As I would rather pay medical expenses directly and take itemized deductions?

A: As long as you are not enrolled in Medicare and participate in a qualified HDHP you may do so. There are no required minimum distributions in HSAs.  

 

Q: I have a rental property in my IRA, when I reach age 70, am I forced to sell?

A: You are not forced to sell assets when your reach age 70 ½. What you are required to do is take a distribution to avoid a 50% penalty on the minimum amount. That minimum amount is called a required minimum distribution. If you do not wish to distribute the minimum amount, you have the option of paying the 50% penalty. 

 

Q: I understand that according to the IRS you can only deduct Home Equity Line of Credit (HELOC) payments if it was a Purchase Money Mortgage on your primary investment. Can you deduct money you pull out of your home for other purposes?

A: It is our understanding that home equity line of credit interest is no longer deductible for any reason.

Q: Is HELOC's interest deductible if used to substantially improve a primary residence? Am I able to use it to consolidate bills, travel, college education?

A: It appears that if the HELOC proceeds were used for acquisition indebtedness and not for other purposes, it may still be deductible. Check with your tax advisor for 2018.

Q: If home equity loan debt is used to carry a rental property, is that interest still deductible going forward?

A: The interest may be used as a deduction as a rental property expense. You may not on the other hand use it as a part of your itemized deduction for your personal return.

Q: If HELOC is the only mortgage, is interest still not deductible?

A: I believe that if it was used for acquisition indebtedness it can still be used as a tax deduction. If used for other purposes such as debt consolidation, it may not.

Q: How are retirement accounts taxed when money is left to beneficiary?

A: Beneficiaries inherit the assets left in your IRA based on their proportionate share. Make sure you identify a percentage or a specific asset that you wish to leave a beneficiary to avoid issues. Depending on the type of IRA, tax treated of the distribution of assets will depend on the type of IRA you have. If it’s a Traditional IRA, there will be taxation. If it’s a Roth IRA, there will be no tax once the qualified distribution criteria are met.

Thank you to everyone who participated in our national webinar. We encourage our readers to post any additional questions regarding self-directed IRAs or retirement planning in the comments section below. You can view the full recording of this webinar here to get answers to questions which are not listed in this article. 

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