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US Senate Progresses Pension Tax Reforms

by Glen Shapiro,, New York

23 September 2016

The US Senate Finance Committee has unanimously approved the markup of a bipartisan bill – the Retirement Enhancement and Savings Act of 2016 – that would make several changes to retirement tax provisions.

For example, under present law, an individual who has attained the age 70.5 prior to the close of a year is not permitted to make contributions to a traditional individual retirement account (IRA). The Act would repeal that prohibition.

Ron Wyden (D – Oregon), the Committee's Ranking Member, said that the update to retirement age provisions "is badly needed, especially because a lot of Americans are living longer. If they can afford to keep saving for retirement, they should be allowed to do so."

A second proposal would change the calculation of the flat dollar amount limit on the nonrefundable tax credit currently granted for the start-up costs of a small employer adopting a new qualified retirement plan, SIMPLE IRA plan (or SEP), provided that the plan covers at least one non-highly compensated employee.

The calculation of the three-year credit is currently the lesser of USD500 per year or 50 percent of the qualified start-up costs. Under the proposal changes, the flat dollar amount for a taxable year would be the greater of (1) USD500 or (2) the amount that is the lesser of (a) USD250 multiplied by the number of employees who are non-highly compensated employees and who are eligible to participate in the employer plan, or (b) USD5,000.

Finally, as an administrative improvement, the Act would establish that, if an employer adopts a stock bonus, pension, profit-sharing, or annuity plan after the close of a taxable year, but before the time prescribed by law for filing the return of the employer for the taxable year, the employer would be able to elect to treat the plan as having been adopted as of the last day of the taxable year.

TAGS: individuals | compliance | tax | pensions | tax compliance | law | employees | retirement | legislation | United States | legislation amendments | Retire | Retirement

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