12SHARESShareShareSharePrintMailGooglePinterestDiggRedditStumbleuponDeliciousBufferTumblr,Dennis Zuehlke Dennis is Compliance Manager for Ascensus. Mr. Zuehlke provides clients with technical support on tax-advantaged accounts (including individual retirement accounts, health savings accounts, simplified employee pension plans, and Coverdell education … Web: www.ascensus.com Details The U.S. Senate, by a vote of 51-49, passed its version of the Tax Cuts and Jobs Act that makes sweeping changes to the tax code, including changes to IRAs and other tax-advantaged saving plans. The good news for credit unions and their members is that the credit union tax-exemption would remain in place and changes to IRAs would be minimal. The Senate vote comes on the heels of the House passing its version of H.R. 1, the Tax Cuts and Jobs Act, by a vote of 227-205. Following is a summary of provisions in the House-passed bill that would affect tax-advantaged savings plans.The ability to recharacterize a Roth IRA contribution to a Traditional IRA, or a Traditional IRA contribution to a Roth IRA would be eliminated. This provision would also eliminate the ability to recharacterize a Roth IRA conversion contribution.The deduction and exclusion for contributions to Archer medical savings accounts (MSAs) would be eliminated. Contributions to MSAs would no longer be permitted and employer contributions to employees’ MSAs would no longer be excludable from income. Contributions to Coverdell education savings accounts (ESAs) would no longer be permitted. Existing Coverdell ESAs would remain in place and existing Coverdell ESA balances could continue to be rolled over to another Coverdell ESA or to a state-sponsored 529 savings program. Under the House bill, state-sponsored 529 savings programs would be enhanced so that assets could be used for elementary and secondary school tuition and for costs associated with qualified apprenticeship programs, up to $10,000 per year.The Senate-passed version of the Tax Cuts and Jobs Act would also repeal the rule that permits recharacterizations of IRA contributions, consistent with the House bill provision. The Senate bill, however, does not contain the MSA or ESA provisions. The Senate bill does include a provision that changes the formula used for calculating the annual cost-of-living adjustments for IRAs, HSAs, MSAs, and the Saver’s Credit. The change would mean that cost-of-living adjustments would occur less frequently than under the current formula. The House and Senate bills both contain a provision to extend the rollover period for certain plan loan offsets and numerous other provisions that would affect employer-sponsored retirement plans. However, neither the House nor the Senate bill contains the “Rothification” provision that was rumored prior to release of the tax bills, which would have treated some or all retirement plan contributions as after-tax contributions, similar to how Roth 401(k) and Roth IRA contributions are currently treated. Many in the industry were worried that tax-advantaged savings plans would be sacrificed to pay for tax reform, given the cost of the plans to the Treasury, which is second only to the cost of employer-provided health insurance. These concerns increased when it was rumored, prior to release of the tax bill, that contribution limits to 401(k) plans and IRAs would be reduced, prompting President Donald Trump to tweet, “There will be NO change to your 401(k). This has always been a great and popular middle class tax break that works, and it stays!”In the end, House and Senate Republicans were able to advance their respective tax reform proposals and stay within the budget constraints without using deferrals to 401(k) plans and Traditional IRAs as revenue offsets. Surprisingly, neither bill contains easy revenue raisers that have been proposed in the past and have bipartisan support, such as requiring beneficiaries of an inherited IRA to deplete the account within five years of the IRA owner’s death. To pass the tax reform legislation into law, both the House and Senate will work in conference committee to reconcile the differences between the two versions of the bill. Each chamber will then need to vote and pass the compromise bill before sending it to President Trump for his signature. The tax reform package is being advanced under the budget reconciliation process, which requires only a simple majority—rather than 60 votes—for passage. This means that Senate Majority Leader Mitch McConnell (R-KY) can lose the support of only two Republican Senators, given that no Democrats are likely to vote for the bill. As House and Senate negotiators work on a compromise bill, they will be constrained by the requirement that the tax reform bill can only increase the deficit by $1.5 trillion in the first 10 years. Any increase in spending will need a corresponding offset, and therein lies the risk that a retirement-related revenue raiser could still be added to the final bill. Although there is much work yet to be done, passage of a tax reform package is likely, given its importance to the Trump administration, but in a politically-correct adaptation of the old colloquialism, “It ain’t over ‘til the President signs the bill.” Stay tuned.