By Allyn Hughes, CFP®, ChFC®, CLU®, CAP®
Recent legislation has made permanent some tax laws that in the past had to be re-approved each year by congress. Some other personal finance rules have also been changed to modestly improve the lives of people using 529 plan assets to pay for college expenses. Here is a quick recap of five changes that we found interesting.
- The Qualified IRA Charitable Distribution (QCD) has finally been made permanent by Congress. The QCD allows IRA owners over 70½ who are taking required minimum distributions (RMDs) to donate up to $100,000 of their RMD to charities each year. If you make this donation, instead of getting a tax deduction, the RMD is not reflected in your income. This effectively provides a deduction no matter your level of earnings. It could also lower your income for Medicare and Social Security tax calculations.
- Here in Washington state, since the Tax Reform Act of 1986 was passed, residents have had to wait until the end of each year for Congress to extend the rule that allows residents to deduct the state and local sales taxes that they have paid from their Federal taxable income. The recent legislation made this change permanent. According to Senator Maria Cantwell this will allow the average Washingtonian to continue to save over $600 each year.
- Penalties for not signing up for Obamacare are going up. In 2014, the penalty for not having qualifying healthcare coverage was $95 per adult or 1% of income above the filing threshold. In 2015, the penalty rose to $295 or 2% above the filing limit. In 2016 the penalty increases again to $695 per adult, or 2.5% of income. The family maximum for penalties which was $695 in 2015 increases to $2,085 this year.
- Because Friday, April 15 is “Emancipation Day” a holiday in Washington D.C., the 2016 tax filing deadline has been moved to Monday, April 18. Three more days to procrastinate!
- If you have a son or daughter in college and you are paying for college expenses using a 529 plan, you probably know that 529 assets could be used for tuition, room and board and books. 529 money previously could NOT, however, be used to buy a computer or tablet computer. A recent rule change now allows 529 plan assets to be used to buy a computer.