AFSA NEWS 54 JANUARY-FEBRUARY 2024 | THE FOREIGN SERVICE JOURNAL Representational and Official Residence Expenses Certain Foreign Service employees receive a nontaxable allowance for representation expenses. If the actual expenses exceed the allowance, the excess expenses are not deductible under current tax law. Further, other Foreign Service employees incurring expenses related to their job may not deduct such expenses. Alimony for Divorces, Settlements, and Modifications Alimony paid pursuant to agreements and orders entered into before Jan. 1, 2019, is deductible by the payer and taxed as income to the payee. Alimony payments paid pursuant to divorce or separation instruments entered into or modified after Dec. 31, 2018, are not deductible by the payer or taxed as income to the payee. Any modifications after Dec. 31, 2018, to agreements finalized before Jan. 1, 2019, must explicitly state that the repeal of the alimony and maintenance rules will apply to the modification, otherwise the pre-2019 rules apply. Taxpayers should read Form 1040 Schedule 1, the Form 1040 Instructions, and Tax Topic 452. Note, TCJA generally repealed IRC Section 71 and 26 CFR 1.71-1 for agreements entered into after Dec. 31, 2018. Required Minimum Distributions (RMD) from Inherited IRAs and Retirement Accounts For inherited traditional IRAs and retirement plan accounts (Account) where the Account owner dies after Dec. 31, 2019, the 2019 SECURE Act changed some rules for RMDs and distinguished between an eligible designated beneficiary (EDB) and other beneficiaries (non-EDBs). EDBs include the surviving spouse, a disabled individual, a chronically ill individual, a minor child until age 21, or an individual not more than 10 years younger than the Account owner. Generally, an EDB may take distributions over the EDB’s life expectancy. However, non-EDBs must withdraw the entire Account by the 10th calendar year following the year of the Account owner’s post-2019 death. Proposed regulations issued in February 2022 clarified that non-EDBs who inherit the Account before the deceased owner’s required beginning date (RBD) of distributions must withdraw the entire Account before the end of the 10th calendar year following the owner’s death. If the Account owner died on or after their RBD, the proposed regulations state that non-EBDs must take annual RMDs (based on the non-EDB’s lifespan) for years one to nine and receive the remaining balance in the 10th calendar year. Prior to these proposed regulations, non-EDBs who inherited Accounts in 2020 reasonably expected they could wait until the end of the 10-year period to withdraw the entire Account. The IRS issued Notice 2023-54 on July 14, 2023; among other things, it allows beneficiaries under the 10-year rule to avoid taking an RMD in 2023. Further, the IRS announced that the proposed regulations when finalized will apply to calendar years beginning no earlier than 2024. Retirement Savings in TSP, 401(k)s, and IRAs Individuals may contribute up to $22,500 to 401(k) plans, the Thrift Savings Plan, and 403(b) plans in 2023. Taxpayers age 50 and older (note the additional amount permitted for ages 60-63 beginning in 2024 as explained below) may make additional catch-up contributions of $7,500 to their qualified employer workplace retirement plan. The 2023 Traditional IRA and Roth contribution limits (in total) are $6,500 for those under age 50 and $7,500 for those age 50 and older. The 2023 tax year deadline for contributing to a Roth IRA or Traditional IRA is April 15, 2024. The IRS charges a penalty for Roth or IRA contributions over the allowed limits. Over-contributions for the tax year being filed, however, may be removed without penalty by the filing due date (with extensions) of the tax return. Contributions to a 401(k), TSP, or 403(b) plan may be made only via payroll deductions, the last of which is possible during the last pay period paid by Dec. 31, 2023. MFJ self-employed spouses working outside the United States who elect the FEIE can make a spousal Roth or Traditional IRA contribution as permitted by income thresholds. Taxpayers with modified AGI above the permitted Roth contribution threshold may want to consider a back-door Roth contribution strategy. In 2022, Congress considered legislation to eliminate back-door Roth contributions and Roth conversions. While this proposed legislation appears to have stalled in Congress, it could be reconsidered in future legislation. The Consolidated Appropriations Act (which included the SECURE 2.0 Act) made some additional changes to retirement plans: • Increases the age for required mandatory distributions (RMD). For 2023 through 2032, the RMD age is 73 and then changes to age 75 after 2032. • Increases the retirement plan catch-up limits for ages 60 through 63 beginning in 2024 to the greater of $10,000 or 50 percent more than the regular catch-up for those 50 and older. • Allows beneficiaries of 529 college savings accounts to roll over up to a total of $35,000 from a 529 account that has been open more than 15 years to their Roth IRA starting in 2024. Readers should review all available IRS guidance before initiating a 529 plan rollover to ensure all requirements are met. • The excise tax if a taxpayer does not take the RMD is reduced from 50 percent to 25 percent of the amount that the RMD amount exceeds the actual distribution in a given
RkJQdWJsaXNoZXIy ODIyMDU=