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Rule Change Updates

Tax Related Updates for Series Exam Candidates

The recent tax law, Tax Cuts and Jobs Act of 2017, implements significant tax reform for individuals, businesses, and municipalities in 2018. Although many of these changes are not specifically tested on Series exams, exam candidates will benefit from an understanding of the updates as they prepare.

High Level Changes

  • For individual taxpayers:
    • There are still seven income tax brackets but all rates are lowered.
    • The standard deduction for individuals is doubled, but the personal exemption is eliminated.
    • Short-term gains are still taxed as ordinary income; long-term gains are still taxed at more favorable rates.
    • The estate tax exemption is doubled to $11.2 million for singles and $22.4 million for couples.
    • The Alternative Minimum Tax remains applicable to individuals, but the exemption is increased, so fewer taxpayers are impacted.
    • The Health Savings Account (HSA) deduction has increased to $3,450 per year for self-only HSAs and $6,900 for family coverage HSAs.
    • Mortgage interest and state and local income tax deductions are capped, but full deductions for charitable contributions, retirement savings, and student loan interest were kept.  Margin account interest and other investment expenses are no longer deductible.
  • Business related items:
    • The corporate rate tax rate on all corporate profits has been reduced to 21%.
    • Taxpayers with pass through business income, including income earned by sole proprietorships, LLCs, partnerships, and S corporations, taxpayers can deduct 20% of their pass-through income before ordinary income tax rates are applied. 

Some Testable Tax Concepts

  • Section 529 Plan savings can now be used for levels of education other than college, including K-12 elementary and secondary school tuition for public, private, and religious schools. Previously, only Coverdell ESA funds could be used for primary and secondary expenses Coverdell ESAs remain available, with contributions still capped at $2,000 per year per beneficiary.
    • Existing 529 savings plans may now be rolled into 529 ABLE accounts, first introduced in 2014, to help Americans living with disabilities save for education and other living expenses.
  • Municipalities may no longer engage in advance refunding transactions. Advance refunding, or pre-refunding, was used by municipalities to issue new debt to refinance outstanding debt more than 90 days before it was callable.  Current refunding transactions, those refunding issues within 90 days of their call dates, are still allowed.
  • The 2018 gift limit per individual is raised to $15,000 per year.  This means that a person has no tax liability on a gift of up to $15,000 given to another person in one year.  Couples may give gifts of up to $30,000 to another individual each year without tax liability.
  • Some retirement plan contribution limits have been increased.
    • For 401(k) plans, the annual employee contribution limit has increased by $500 to $18,500.  Employees age 50 and over are entitled to a catch-up contribution of an addition $600 per year.  Although the amount of the catch-up contribution was not changed for 2018, the total contribution allowed for employees 50 and over is now $24,500.
    • Traditional and Roth IRA contribution limits remain the same in 2018:  $5,500 per individual, $6,500 for persons age 50 and over.
  • The computation of inflation for indexing purposes will now be based on Chained CPI instead of CPI-U.  This computation method effectively shows a slower pace of price gains, or inflation, than traditional CPI.

Series Exam Impact

Tax law changes and retirement plan updates are likely to have some impact on many FINRA licensing exams, so you should be aware of these changes if you have an upcoming exam.

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Marcia Larson is Vice President, Faculty, at Knopman Marks Financial Training, New York, NY. She has extensive experience in financial licensing and regulatory training, having authored, developed and presented courseware for numerous securities and insurance exam preparation and continuing education and compliance programs. Before joining Knopman Marks, Marcia was Director of Annuity Products and Business Development at CUNA Mutual Group, where she developed and marketed industry-leading annuity products and retirement solutions and implemented distribution relationships. She was previously VP, Securities Products for Kaplan Financial, managing securities training products and subsequently, international training and businesses development. Marcia has trained thousands of financial industry exam candidates throughout their careers, and also college students as an adjunct professor. Marcia was a summa cum laude graduate of Wartburg College with degrees in Business Administration and Piano Performance. Marcia also holds the designations of Chartered Financial Consultant® (ChFC®), Chartered Life Underwriter (CLU®), Certified Employee Benefit Specialist (CEBS), and Fellow Life Management Institute™ (FLMI®). She currently teaches the SIE, Series 6, 7, 24, 50, 52, 63, 65, and 66 exams.