Six 2016 Retirement Account Rule Changes You Need to Know
By Sarah Brenner, IRA Analyst
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Good bye 2015... and hello 2016! It’s a new year. What does the arrival of 2016 mean for your retirement account? Here are 6 retirement account rule changes that you need to know.
- Qualified Charitable Distributions (QCDs) are back - permanently. With the enactment of the PATH Act of 2015 on December 18, 2015, Congress again brought QCDs back to life. QCDs allow IRA owners and beneficiaries who are age 70 ½ and older to directly transfer $100,000 to a charity tax-free. What is different this time around? QCDs are now permanently available. This ends years of last-minute renewals. In 2016, if you are over age 70 ½ and charitably inclined, you can count on QCDs being available. You can act now to integrate this strategy into your long-term planning earlier in the year.
- More penalty-free distributions for public safety workers. More penalty-free distributions will be available at age 50 for public safety workers. Congress has expanded the definition of “public safety worker” to include many federal workers. Also in 2016, distributions from governmental defined contribution plans as well as defined benefit plans will qualify. If you are a public safety worker, these changes may allow you to take penalty-free distributions in 2016 even if you were not eligible in prior years.
- More portability for your SIMPLE IRA. In 2016, one of the last barriers to portability between retirement plans is gone. If you are looking to move money from another retirement plan to your SIMPLE IRA, this will be possible as long as you participated in the SIMPLE IRA plan for two years. This change can help if you are looking to consolidate multiple retirement accounts.
- Expanded penalty-free distributions for higher education. The PATH Act changes the definition of higher education expenses to include expenses for the purchase of computers and related equipment, software, and internet access expenses, if used primarily by a student during any of the years they are in school. In 2016, you can take penalty-free IRA distributions to pay for a computer or other computer-related expenses, even if the school your son or daughter attends does not require a computer as a condition of enrollment.
- More time to roll over certain airline payments. Were you a participant in American Airlines pension plan when it filed for bankruptcy? Good news! You now may have more time to rollover. Congress extended the deadline for rollover of certain airline payments until June 15, 2016.
- Increases in income limits for contributions. Each year, the IRS releases cost-of-living adjustments for retirement accounts. Not all limits are increased annually. For 2016, the IRA contribution limit remains the same as 2015. The maximum amount that you can contribute to your IRA in 2016 is $5,500 if you are under age 50 and $6,500 if you attain age 50 during 2016. However, if you are married filing jointly, the income limits that restrict Roth IRA contributions have increased. The limits for deducting Traditional IRA contributions, if you are not an active participant in a company plan, but your spouse is, have also increased. For 2016, eligibility for both begins to phase out when modified adjusted gross income (MAGI) is $184,000 and is eliminated when MAGI reaches $194,000.
The new year is a great time to revisit and revamp your retirement plan. Do any of the new 2016 rules present new opportunities for you? Taking some time now as the new year begins to give some thought to your retirement is a valuable strategy. If you have questions, consider a consultation with a knowledgeable financial advisor to be sure you are on the right path.