What you need to know

Here is an update on a few topics that our readers have requested.

Benefit Plans

A reminder on employer-paid education assistance programs from IRS. The payments are tax-free to employees, up to a limited dollar amount. These plans allow employees to exclude from gross income and wages up to $5,250 of payments they receive each year for educational assistance benefits. The education needn’t be work-related. The plans must be written and meet other rules to qualify. Beginning next year, the $5,250 figure will be annually indexed to inflation.

Among the items included in qualifying educational benefits: Tuition, fees, books, and supplies for college or graduate school. Also, the plan can help employees pay off debt on their qualified educational loans. This student loan repayment feature was set to expire at the end of 2025, but the OBBB permanently extended the break.

A bipartisan bill aims to help small nonprofits offer retirement plans to their workers. The proposal, which was introduced in the House and Senate, would extend to nonprofits certain start-up credits for setting up retirement plans that are now available only to smaller for-profit employers. If the bill is enacted, eligible exempt groups that spend money to launch employee retirement plans would be able to use up to $5,000 in tax credits to offset their payroll taxes.

IRA’s

If you are of RMD age and want to convert a traditional IRA to a Roth IRA… You must take your annual RMD before doing any conversion for the year. This applies whether you decide to convert the full IRA or just some of the funds. We received a question from a reader as to how this rule works for IRA owners who turn 73 this year and decide to delay their first RMD to as late as April 1 of 2026. In this situation, the IRA owner can’t do a Roth conversion this year. He or she will instead have to wait until 2026, after taking the RMD for 2025 and 2026. Alternatively, the IRA owner can take the RMD in 2025 and then do the conversion.

Also, note this important rule if you own multiple traditional IRAs and want to do a Roth conversion. You must withdraw your total aggregate IRA RMD for the year before doing a Roth conversion from any of your traditional IRAs. This doesn’t pertain to RMDs from 401(k)s or other workplace retirement plans. For example, say you own four traditional IRAs, with an aggregate RMD for 2025 of $68,526. If you want to do a Roth conversion on any of the four IRAs in 2025, you must first take your 2025 aggregate RMD of $68,526 from any of your IRAs that you so choose, and then you can do the Roth conversion for the year.