The so-called “tax extenders package” enacted on Dec. 18, 2015 improves on some existing retirement tax rules. Among the new rules:
- Qualified charitable distributions (QCDs) have been made permanent, eliminating the almost annual wait-and-see ritual that has been the case since their inception in 2006. Advisers and clients have had to wait until the final days of the year to act with certainty. QCDs expired again at the end of 2014, but the new law, the Protecting Americans from Tax Hikes Act of 2015, makes them effective retroactively for 2015 and beyond. No more expire-and-renewal nonsense each year. QCDs allow charitably minded IRA owners and beneficiaries who are 70½ or older to directly transfer up to $100,000 of their IRA to charity each year. The distribution is not included in income, lowering adjusted gross income by a key amount that could otherwise trigger the loss of tax benefits or cause more Social Security benefits or investment income to be taxed.
- More public safety employees qualify for penalty-free access to their retirement savings. The new PATH Act of 2015 enhances the ability of more public safety employees to take penalty-free withdrawals beginning in 2016. This is in addition to the trade bill signed into law in June 2015. For many years, tax law provided an exception to the 10 percent early distribution penalty for withdrawals from company retirement plans for individuals who separate from service at age 55 or older. Another, less publicized exception, known as the “age 50 exception,” is available for some public safety officials, and this provision now has been expanded. Early distributions are still subject to income tax. The exceptions I am referring to here are only for the 10 percent penalty, but that still can provide much-needed savings for some. The exception is not available for distributions from IRAs.