by Judith Hanley, CPA.
October 2018 Edition – 401K student loan match, retirement account beneficiaries, and unreimbursed employee business expenses.
The last few months have been a crazy time for the team here at Bach, James, Mansour & Company. Baseball playoffs, college football upsets, the Kavanaugh hearings, weather tragedies – and of course the October 15 tax deadline – have kept us all pretty busy. Now that 2018 tax “season” is officially over, we have a few moments to breathe before we clear the eraser shavings and candy bar wrappers off our desks and start it all over again.
I diligently read about tax and accounting updates, even during crunch times of the year, and there are several items that I wanted to share with you:
IRS approves 401K match for student loan repayments
This started with one company (Abbott Labs) asking the IRS to allow it to offer special 401k contributions for employees who were diligently making college loan payments. The employer wanted to make a 5% matching 401k contribution when the employee paid at least 2% of their eligible compensation toward college loans. In a four-page response with terms that require a CPA translator, the IRS approved.
While the initial impact is minimal, I think this is a terrific first step. If this becomes common practice, those burdened with student loan debt won’t have to sacrifice longer-term financial planning to pay off loans. It’s also an appealing benefit for employers trying to attract millennials in a tight job market.
It’s time to review your retirement account beneficiaries
Is your ex-spouse still designated as your 401(k) beneficiary? Not that there’s anything wrong with this, but if you’re remarried, you may not want your ex to inherit a portion of your estate. At major life events or changes, like marriage, divorce, birth, and death, it’s a good idea to review all investment account beneficiaries, especially retirement accounts. If you can’t remember the last time you checked, it’s probably time to do it again.
Unlike property and traditional investment accounts, assets held in 401(k)s or other retirement accounts are considered Transfer-On-Death (TOD) benefits, meaning that ownership is immediately transferred to designated beneficiaries rather than being divided based on a will, divorce decree, or probate court decision. Consider designating both a primary and contingent beneficiary (like your spouse and child) just to be safe.
Most of us can no longer deduct unreimbursed employee business expenses
“No way!” is the response I normally get when I mention this to clients. In addition to cutting taxes, the Tax Cuts and Job Act of 2017 also eliminated a number of deductions, including the ability for employees to deduct unreimbursed business expenses starting with your 2018 tax returns. For example, if your employer doesn’t reimburse you for the business miles you drive, you can no longer deduct that expense (used to be around $0.50 per mile) on your taxes. Employee-paid business cell phone bills, car lease payments, uniforms, and other items are no longer deductible. Please don’t shoot the messenger.
Now is the time to discuss this with your employer, while there’s still time for the company to potentially adjust expense policies. Please note that this does not necessarily apply to certain self-employed individuals who claim expenses on Schedule C or Schedule F to offset income. Please contact me to discuss your unique situation.