Timely Tax Tips on Retirement and Education Accounts | Lord Abbett

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Retirement Perspectives

Here’s a handy recap of the hottest topics at our recent webinar.

With more and more clients looking to shore up their tax-advantaged nest eggs, there was an impressive turnout for our March 8th retirement planning webcast, “What the Tax Cuts and Jobs Act Means for Retirement and Education Accounts.” And advisors had plenty of great questions. Here’s how to catch the replay.

Amid considerable uncertainty around the tax bill, I covered a variety of topics, including retirement policy, new rules and regulations, the importance of tracking and reporting IRA basis, health savings accounts (HSAs), business-building ideas, and Roth-funding strategies. Given the large number (and range) of inquiries, I’ve assembled a compendium of our most popular articles for your convenience. In addition, I’ve recapped a few questions and answers from the call:

Q. Since there is so much pent-up interest in the back-door Roth strategy, could you provide a refresher?
Please see my recent column for details on the back-door Roth.

Q. Does HSA eligibility require an individual to have earned income?

Q. What happens to HSA assets upon the death of the account owner?
An HSA requires an account holder to name a beneficiary, just as you would with an IRA or 401(k). And similar to retirement accounts, the individual you name inherits the HSA after your death. Moreover, as with retirement accounts, you can name anyone as beneficiary, including spouse, non-spouse, estate, etc. Naming an HSA beneficiary follows a number of guidelines for group retirement plans and IRAs—but that is generally where the parallel ends.

If your beneficiary is your spouse, then your HSA, upon death, becomes your spouse's HSA. The surviving spouse can continue to access HSA funds, and distributions for qualified medical expenses will be tax free, the same way they would be if distributed to the now deceased account owner. However, beneficiaries other than a surviving spouse or the estate must include the full value of the HSA as taxable income in the year in which the account owner dies. So, unless you name your spouse as the beneficiary of your HSA, the account loses its tax-advantaged status as an HSA upon death of the account holder. The amount that is required to be included in gross income by any beneficiary (other than the estate) is reduced by the amount of qualified medical expenses that were incurred by the decedent prior to death and paid by the beneficiary with one year of death.

A non-spouse beneficiary does not have the option of establishing an inherited HSA, which means the option to “stretch” payouts is also unavailable. As a result, limited payout options could lead to receiving a sizable amount of income within a short time frame, potentially bumping a non-spouse beneficiary into a higher marginal tax bracket.

Sometimes an estate is named beneficiary of an HSA. Special rules apply here, too—the total distribution is included on the deceased account owner’s final tax return—not estate beneficiaries.

Q. Where can I learn more about the retirement provisions included in the Tax Cut and Jobs Act of 2017?
Please see our recent column on the tax bill.

If you have any questions about this or another retirement topic, please e-mail me at roadtoretirement@lordabbett.com.


To comply with Treasury Department regulations, we inform you that, unless otherwise expressly indicated, any tax information contained herein is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed under the Internal Revenue Code or any other applicable tax law, or (ii) promoting, marketing, or recommending to another party any transaction, arrangement, or other matter.

The information is being provided for general educational purposes only and is not intended to provide legal or tax advice. You should consult your own legal or tax advisor for guidance on regulatory compliance matters. Any examples provided are for informational purposes only and are not intended to be reflective of actual results and are not indicative of any particular client situation.

The information provided is not directed at any investor or category of investors and is provided solely as general information about Lord Abbett's products and services and to otherwise provide general investment education. None of the information provided should be regarded as a suggestion to engage in or refrain from any investment-related course of action as neither Lord Abbett nor its affiliates are undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product or service may be appropriate for your circumstances.


Traditional IRA contributions plus earnings, interest, dividends, and capital gains may compound tax-deferred until you withdraw them as retirement income. Amounts withdrawn from traditional IRA plans are generally included as taxable income in the year received and may be subject to 10% federal tax penalties if withdrawn prior to age 59½, unless an exception applies.

A Roth IRA is a tax-deferred and potentially tax-free savings plan available to all working individuals and their spouses who meet the IRS income requirements. Distributions, including accumulated earnings, may be made tax-free if the account has been held at least five years and the individual is at least 59½, or if any of the IRS exceptions apply. Contributions to a Roth IRA are not tax deductible, but withdrawals during retirement are generally tax-free.

A SIMPLE IRA plan is an IRA-based plan that gives small-business employers a simplified method to make contributions toward their employees’ retirement and their own retirement. Under a SIMPLE IRA plan, employees may choose to make salary reduction contributions and the employer makes matching or nonelective contributions. All contributions are made directly to an individual retirement account (IRA) set up for each employee (a SIMPLE IRA). SIMPLE IRA plans are maintained on a calendar-year basis.

A simplified employee pension plan (SEP IRA) is a retirement plan specifically designed for self-employed people and small-business owners. When establishing a SEP-IRA plan for your business, you and any eligible employees establish your own separate SEP-IRA; employer contributions are then made into each eligible employee’s SEP IRA.

401(k) is a qualified plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions on an aftertax and/or pretax basis. Employers offering a 401(k) plan may make matching or nonelective contributions to the plan on behalf of eligible employees and may also add a profit-sharing feature to the plan. Earnings accrue on a tax-deferred basis.

A 403(b) plan is a retirement savings plan that allows employees of public schools, nonprofit, and 501(c)(3) tax-exempt organizations to invest on a pretax and or Roth aftertax basis. Contributions to a 403(b) plan are conveniently deducted directly from your paycheck. In addition, your employer may elect to make a contribution on your behalf.

125 Plan.  A cafeteria plan is a separate written plan maintained by an employer for employees that meets the specific requirements of and regulations of section 125 of the Internal Revenue Code. It provides participants an opportunity to receive certain benefits on a pretax basis. Participants in a cafeteria plan must be permitted to choose among at least one taxable benefit (such as cash) and one qualified benefit.

A qualified benefit is a benefit that does not defer compensation and is excludable from an employee’s gross income under a specific provision of the Code, without being subject to the principles of constructive receipt. Qualified benefits include the following: accident and health benefits (but not Archer medical savings accounts or long-term care insurance); adoption assistance; dependent care assistance; group-term life insurance coverage; and health savings accounts, including distributions to pay long-term care services.

qualified HSA funding distributions (QHFD) is a distribution from a traditional IRA or a Roth IRA , that is made to the individual’s Health Savings Account (HSA) as a contribution. This is a one-time contribution, which must be made in a direct trustee-to-trustee transfer. 

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