IRS Announces 2020 Annual Adjustments for Qualified Retirement Plan Limits

The IRS has announced the annual limits that will apply to qualified retirement plans in 2020. The key 2020 limits, as compared to the 2019 limits, are:

For 401(k) plans, the maximum deferral limit increases by $500 to $19,500 for a participant who is under age 50. A participant who is age 50 or older will be able to defer a maximum of $26,000 ($19,500 + $6,500 catch-up), a $1,000 increase from 2019.

If you have any questions or would like more information, please contact Cynthia A. Moore in the Troy, Michigan office at 248-433-7295.

Section 1202 – Qualified Small Business Stock

The tax code includes a number of provisions that benefit small businesses and small business owners. One of these provisions is contained in Section 1202 which provides for an exclusion of up to 100% of the gain realized on the sale of qualified small business stock (“QSB Stock”). The gain exclusion can provide significant tax savings for owners of small businesses when they sell their stock. In order to qualify as QSB Stock under Section 1202, a number of technical requirements must be met with respect to the ownership of the stock and as to the underlying corporation, including that the stock must be acquired by the taxpayer at original issuance, held for at least 5 years, and be issued by a C corporation that is actively engaged in business and does not have assets in excess of $50 million (at the time of the stock’s issuance).

The Section 1202 exclusion is limited, and gains excluded under Section 1202 cannot exceed the greater of: $10 million or 10 times the QSB Stock’s basis.

Historically, Section 1202 is often overlooked as most private companies have generally preferred to be organized as pass-through entities. However, the recent reduction in the federal corporate tax rate to 21% may prompt a re-evaluation of whether treatment as a C corporation makes sense.

For more information, please contact Andrew MacLeod in the Detroit, Michigan office of Dickinson Wright at 313-223-3187 or any member of Dickinson Wright’s tax team.

When You Should Consider Updating Your Estate Plan

Preparing an estate plan can be a lot of work, both for the planner but especially for the client. And when that process is over, and the plan has been properly put in place through effective trust funding and asset titling, it is common for the client to not think about the plan again for years at a time.

Generally speaking, we recommend that clients review their planning every three to five years. But, there are very specific family and financial events that may occur during that time that make updating the estate plan crucial. Marriage or divorce, the death of a spouse, the birth (or death) of a child or grandchild, the marriage (or divorce) of a child, significant increases (or decreases) in personal wealth, receiving a substantial inheritance or gift, the sale (or acquisition) of significant business assets, moving to another state, and changes in clients’ relationships with their personal representatives, trustees, or other appointees, are just a few of the most common events that should motivate clients to review their estate planning documents.

Additionally, changes in the law, both at the state level and at the federal level (particularly with regard to the tax code), also should spur a review of the estate plan. We as planners do our best to notify existing and former clients on these types of changes, but it is not feasible to contact everyone that might be affected. For example, the significant changes to the estate tax exemption in the last decade, especially with the passage of the Tax Cuts and Jobs Act in late 2017, have made simplifying estate tax-driven plans much more common.

If you have any questions about updating your own estate plan or advising clients on updating their plans, please contact Alex Zucco (616-336-1009) in our Grand Rapids office or one of our other estate planners in our North American offices.