Effect of Tax Cuts and of Jobs Act of 2017 (P.L. 115-97) on Solo 401k Plans and IRAs

The Tax Cuts and Jobs Act of 2017 was signed into law by President Trump on December 22, 2017. While sweeping in that it affects individuals, businesses owners, corporate tax payers, and retirement plans, it surprisingly does not affect 401k plans including solo 401k plans as previously stated in proposed reforms. For instance, the Act does not curtail the 401k contribution limits which was a big proposal.

The Effects of the Tax Cuts and Jobs Act of 2017 on Solo 401k Plans and IRAs.

IRAs – Roth IRA Conversions

  • Repeals the rule permitting the re-characterization of Roth IRA conversions.
  • For 2017 and prior years, you had until October 15 of the following year to undo part or all of the Roth IRA conversion.
  • This rule is  effective  for Roth IRA conversions occurring on January 1, 2018 and after.
  • Therefore, even though you can still convert a traditional IRA to a Roth IRA, it may no longer be recharacterized (you can’t change your mind) or reversed after 2017 . See Code Sec. 408A(d)(6)(B)(iii), as added by Act Sec. 13611).

Compliance Note:

Don’t confuse the new rule with the recharacterization rule that applies to Roth IRA contributions wereby a Roth IRA contribution can be recharacterized to a traditional IRA. For example, if you make a Roth IRA contribution for 2018 and later decide to treat it as a traditional IRA contributions, you can do so as long as it is done by the due date of your individual tax return, so by April 15, 2019 in this example. This was detailed in the Conference Committee Report.

Solo 401k Plans- Rollovers of Offset Solo 401k Participant Loans

The Act extends the 60-day period for rolling over the amount of an “offset” to a plan loan to the tax filing deadline, including extensions, for the tax year in which the offset/distribution occurs. The extension applies to offsets as a result of solo 401k plan termination or severance of of self-employment. This rules is effective for tax year beginning 2018. VISIT HERE to learn about how participant loan offsets are reported on Form 1099-R and Form 5498.


SOLO 401(K)