For self-employed individuals and business owners
Effective for the 2020 tax year, The SECURE Act ended the deadline to adopt profit sharing plans, defined benefit plans and cash balance plans to the business’ tax filing deadline including extensions. This is huge! Typically, business owners don’t realize they need an additional tax deduction until completing their taxes after the end of the year. But, at that point, the deadline to adopt a qualified plan had come and gone.
To encourage employers to adopt qualified plans, The SECURE Act extended the deadline to adopt qualified plans to be the business’s tax filing deadline including extensions. For example, a business can adopt a qualified plan for 2020 up until the business’s tax filing deadline in 2021 including extensions. This allows employers to adopt a qualified plan after they know their results for the prior year. Also, if the tax return is fully extended the business may have some visibility into the current year results, which may provide comfort in adopting more advanced plans like cash balance plans.
If a business owner is on the fence about establishing a plan, it may be worth filing an extension. And, don’t forget many businesses may qualify for a tax credit for establishing a plan.
For individuals age 70 1/2
For 2019 and earlier tax years, individuals age 70 1/2 and older were not eligible to contribute to a traditional IRA. The SECURE Act removed this age limit for individuals. However, keep the following points in mind:
- As under old law, to take a deduction for contribution to a traditional IRA an individual (or their spouse) must have self-employment or W2 income. Traditional IRA Deductions cannot be used to reduce AGI due to social security, pension or investment income.
- The New SECURE Act IRA contributions will reduce the $100,000 limit on Qualified Charitable Distributions.