When the recent tax law changes were being drafted, there had been some concern that drastic changes were in store for 401(k) plans. Some lawmakers had been seeking to limit or eliminate traditional pre-tax contributions in favor of after-tax Roth contributions, in order to collect tax revenues sooner rather than later. Despite these concerns, in practice, there have been only three relatively minor changes to 401(k) plans due to the law’s passage:
- The window for loan repayment of terminated employees has been expanded. We have previously outlined those changes here.
- Participants subject to payback of taxed overpayments are now eligible for a tax deduction on that overpayment.
- The definition of a “casualty loss” in determining immediate financial need for a Hardship distribution has been changed. Now a participant’s principal residence must be located in a federally declared disaster area to request a hardship withdrawal for expenses related to a casualty loss.
These changes are only relevant in the most narrow of circumstances, but as always, please feel free to reach out to your Plan Consultant if you have any questions about these changes.