3 Things You Should Know About Tax Reform

During the last two weeks of the year, some Americans were able to take advantage of tax reform and minimize their April tax bills by deferring income into 2018 and accelerating itemized deductions into 2017.

If you weren’t among them, don’t worry. The new law creates a wealth of opportunities. Here are three things you should know about the new tax rules. Tax reform may:

Additionally, some employers have announced they will take a portion of the savings generated by lower corporate tax rates and increase matching contributions for participants in workplace plans.

1. Provide opportunities to improve retirement security. New individual tax brackets and lower tax rates for some Americans could increase spendable income, allowing Americans to maximize contributions to tax-advantaged plans.

   Tax reform did not change the tax advantages offered by or contribution amounts to qualified retirement plans. For 2018, participants can save up to $18,500 pre-tax in an employer’s 401(k) plan and up to $5,500 in an Individual Retirement Account (IRA). If you’re over 50, the “catch-up” contribution limit for 401(k) plans remains $6,000, as does the limit of $1,000 for IRAs.

2. Help small businesses to become more competitive. While workplace plans help many Americans save for retirement, according to the Census Bureau and the Small Business Administration about 43 million Americans – 36 percent of our workforce – is employed by small businesses that often do not offer workplace plans.

   The savings generated by permanently lower corporate tax rates, and new pass-through tax rates, may create savings that enable smaller businesses to establish workplace plans, like SIMPLE IRAs, that help attract and retain talent. SIMPLE IRAs are low-cost payroll deduction plan options for companies with fewer than 100 employees. They offer tax incentives for business owners and participants, and have higher contribution limits than Traditional IRAs. To learn more, read What is a SIMPLE IRA?

3. Require investors to take another look at portfolio diversification. Most of the tax changes for individual investors expire on December 31, 2025. Consequently, investors should consider diversifying their portfolios by tax structure. That means including investments that have different tax treatments (e.g. pre-tax, taxable, tax-deferred, and tax-free).

   When there is uncertainty about the future, portfolio diversification is critical. Investors also may want to consider the role of alternative assets – real estate, hedge funds, commodities, marketplace loans, private equity or debt, gold and other metals – in in their retirement portfolios. Alternative assets can be included in Self-Directed IRAs.

You can learn more about IRAs, workplace retirement solutions, and alternative assets by visiting our learning center.

The material in this blog is presented for informational purposes only. Millennium Trust Company performs the duties of a directed custodian, and as such does not sell investments or provide investment, legal or tax advice.