The House Ways and Means committee has released the details of a second tax bill that is largely designed to help Americans save for their future. Naturally, the bill is just a draft and will likely go through a number of changes and iterations should it progress down the path to becoming a bill. However, it gives us some insight into the thinking of Congressional leaders. The bill contains a number of provisions that will impact financial planning, including:
- The new bill would make the individual tax cuts permanent, whereas they are otherwise scheduled to sunset in seven years.
- The age limit for contributing to an IRA will be eliminated allowing workers who are over age 70.5 to continue to contribute to their IRAs.
- Individuals will be allowed to access their retirement accounts without penalty to pay for childbirth or adoption expenses. However, a distribution from a pre-tax retirement account will still be subject to income taxes.
- The creation of a flexible savings account that will allow Americans tax advantages to save for a variety of life goals, not just retirement.
- Section 529 plan distributions will have even more flexibility. 529 plan distributions will be eligible to pay for home schooling, fees related to an apprenticeship, and can be used to pay off student loans.
The proposed tax bill is still in the early stages and is not ensured to become law given the estimated $680 billion price tag over the next 10 years. We will continue to track its progress and provide updates on any amendments that may be added or changes that may occur. However, it is not too early to start saving to be in a position to take advantage of the proposed tax incentives that are designed to encourage Americans to save more.