Key Tax Deadlines & the Disaster Retirement Savings Act
Trusted advisors from ABG Southwest, REDW LLC‘s group of retirement plan experts, are highlighting key Q1-2022 tax deadlines for defined contribution plans, participant benefit strategies, and legislative updates on the Disaster Retirement Savings Act. Moving forward into 2022, it is especially important for employers, human resource professionals and retirement plan providers to keep team members and participants on track and in the loop.
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Upcoming Compliance Deadlines
It’s a New Year! Remind Participants To:
1. Update their beneficiaries
When it comes to beneficiary designations, many participants may “set it and forget it,” assuming plan custodians and administrators are responsible for beneficiary information and updates. Others mistakenly believe that they are taken care of by having a will or estate plan. Costly mistakes and potential heartache for loved ones can be avoided with this simple but important reminder.
2. Increase their contribution rate
Increasing this percentage at the beginning of each year, with the goal of ultimately saving at least 10% of their salary annually, is a worthwhile strategy for participants to adopt on their road to a comfortable retirement. The contribution limit for 401(k), 403(b) and 457 plans increased in 2022. Participants can now contribute up to $20,500 which is a $1,000 increase from last year’s $19,500 limit. If the participant is age 50 or older, the 2022 maximum limit is $27,000.
The Disaster Retirement Savings Act
Proposed Tax Relief During Federally-Declared Natural Disasters
Representatives Mike Thompson (D-CA) and Mike Kelly (R-PA), who both sit on the tax-writing House Ways and Means Committee, introduced the bipartisan Disaster Retirement Savings Act. This proposed legislation would allow survivors of natural disasters to withdraw funds from retirement accounts for up to $100,000 to cover emergency expenses related to disasters. There would be no fees or penalties incurred with these withdrawals.
If signed into law, this tax relief would be triggered automatically if a federal disaster is declared. Under the current law, taxpayers that have been impacted by a natural disaster may be subject to a 20% withholding and 10% early withdrawal penalty. Congress may act afterwards to provide relief, but it is not always guaranteed or immediate.
The proposed legislation would provide the following in the event of a natural disaster:
- Relief from the 10% early withdrawal penalty for qualified disaster relief distributions up to $100,000 from a qualified retirement plan, 403(b) plan, 457(b) plan or an IRA.
- Income attributable to a qualified disaster distribution may be included in income ratably over three years.
- The amount of a qualified disaster distribution may be recontributed to an eligible retirement plan within three years.
- The re-contribution of retirement plan withdrawals for home purchases cancelled due to eligible disasters.
- An increase in the limit on loans from $50,000 to $100,000 and these loans would not be treated as distributions.
- Individuals with outstanding loans who reside in a disaster area would be eligible to delay repayment for up to one year.
This bill is also supported by the American Retirement Association (ARA) and the American Institute of CPAs (AICPA).
We Welcome Your Questions
Trusted advisors from ABG Southwest welcome your questions on upcoming deadlines, benefit strategies, and the Disaster Retirement Savings Act, among other legislative updates. Contact Us.