How Does the 2017 Tax Cuts and Jobs Act Affect Your Financial Plan?

The 2017 Tax Cuts and Jobs Act is growing in popularity according to recent polls.  Presumably, the increase in popularity is the result of millions of taxpayers seeing an increase in their February paychecks.  Fatter wallets and bank accounts are not the only changes resulting from the tax reform.  Let us look at some of the other changes that might have an impact on your financial plan and/or investment portfolio.  

As a reminder, nothing in this article is intended as tax advice. Consult your CPA or tax professional to see how the items discussed in this article impact your specific financial and tax situation.

401(k) Loans

401(k) plan participants received good news when President Trump signed the new tax law bill in December of 2017.  Not only was the controversial proposal to lower the amount Americans can contribute to 401(k) plans scrapped, but 401(k) savers with loans outstanding got a reprieve on their repayment terms.

Prior to the change, employees who left a company with a 401(k) loan outstanding had to repay the loan within 60 days of their departure or they faced paying income tax on the balance of the 401(k) loan, and in many cases a 10% early withdrawal penalty.  Under provisions of the tax reform, the loan repayment terms have been extended until the day the 401(k) plan participant files their federal tax return.

Roth Conversions

The new tax legislation also ended the ability of retirement savers to undo Roth IRA conversions. Before the change, savers were able to undo a conversion from a traditional IRA to a Roth IRA by “recharacterizing” the conversion by the October tax-filing date of the year following the original conversion. Primary reasons for recharacterizing a Roth conversion are to avoid paying a higher tax bill on the conversion on an account that has gone down in value since the conversion, or when the IRA owner lacks the cash to pay the tax bill for the conversion.

While retirement savers will still be able to convert traditional IRA assets to Roth IRA assets, they will lose the ability to undo the conversion in the future. The IRS will allow recharacterizations of 2017 Roth IRA conversions up until the October 15, 2018 tax deadline.

529 Plans

529 plans now offer more flexibility for education planning. Traditionally, 529 plans have allowed tax-free withdrawals from plans to pay eligible college education expenses, including tuition, books, and room and board.  Under the new tax law, 529 plan assets can now be used to pay for private-school tuition for grades K-12. The provisions of the tax law allow $10,000 of 529 plan assets to be used per student, per year, for private-school tuition.

529 plan account owners will want to do a little research and exercise caution before using 529 plan assets to pay for private-school tuition.  One reason is that 529 plan withdrawals could derail post-secondary education plans by taking these premature withdrawals.  Another reason to do some research is that some state 529 plans may not allow private-school tuition withdrawals without triggering state-tax consequences.  As of the date of this article, Ohio 529 tax-plan withdrawals are still restricted to post-secondary higher education purposes, but Senate Bill 22 is currently being crafted in the state legislature to permit private-education withdrawals from 529 plans.


There are plenty of other nuances to the 2017 Tax Cuts and Jobs Act that merit exploration for taxpayers and their tax professionals.  Additionally, there are still some provisions that require additional guidance and explanation from the IRS.  Most taxpayers and their financial plans will benefit in 2018 and beyond from lower tax rates and generous tax provisions that leave more money in their paychecks to pursue their financial and retirement goals.
Sources: Wall Street Journal,, Ohio Tuition and Trust Authority