RMD Tax Tips For You…
Required Minimum Distributions (Rmds) Now Begin At Age 72
Many taxpayers are working longer and will no longer be required to withdraw assets from IRAs and 401(k)s at age 70½. RMDs now begin at age 72 for individuals who turn 70½ in the calendar year 2020.
NEW for calendar year 2020, are provisions included by Congress in the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The act includes many long- overdue reforms that make saving for retirement easier and more accessible for many more taxpayers.
This legislation reflects changes to defined contribution plans (such as 401(k)s), defined benefit pension plans, individual retirement accounts (IRAs), and 529 college savings accounts. Most provisions went into effect on January 1, 2020.
If you turned age 70½ in 2019 and have already begun taking your RMDs, you should generally continue to take your RMDs.
Important Consideration! The Coronavirus Aid, Relief and Economic Security (CARES) Act suspended ALL retirement Required Minimum Distributions (RMDs) for 2020. You are NOT required to take an RMD!
You Can Make IRA Contributions Beyond Age 70½
As Americans live longer, an increasing number are continuing to work past traditional retirement age. Under the act, you can continue to contribute from your earned income to your traditional IRA past age 70½.
Inherited IRA Distributions Generally Must Now Be Taken Within 10 Years
Previously, if you inherited an IRA or 401(k), you could “stretch” your distributions and tax payments out over your single life expectancy. Now, for IRAs inherited from original owners who died beginning January 1, 2020, the new law requires many beneficiaries to withdraw assets from an inherited IRA or 401(k) plan within 10 years following the death of the account holder.
Exceptions to the 10-year rule include assets left to a surviving spouse, a minor child, a disabled or chronically ill beneficiary, and beneficiaries who are less than 10 years younger than the original IRA owner or 401(k) participant.
You Can Withdraw Up To $5,000 Per Parent Penalty-Free From Your Retirement Plan Upon The Birth Or Adoption Of A Child
The new law permits an individual to take a “qualified birth or adoption distribution” of up to $5,000 from an applicable defined contribution plan, such as a 401(k) or an IRA.
The 10% early withdrawal penalty will not apply to these withdrawals, and you can repay them as a rollover contribution to an applicable eligible defined contribution plan or IRA.
529 Funds Can Now Be Used To Pay Down Student Loan Debt, Up To $10,000
In some cases, families have money remaining in their college savings plans after their student graduates. Now, they can use a 529 savings account to pay up to $10,000 in student debt over the course of the student’s lifetime.
Under the new law, a 529 plan may also be used to pay for certain apprenticeship programs.
Passage of the Coronavirus Aid, Relief and Economic Security (CARES) Act earlier this year provides taxpayers with a variety of tax related provisions in response to the COVID-19 Pandemic.
Elimination of 10% Additional Tax for Coronavirus-Related Retirement Plan Distributions
The CARES Act eliminated the 10% penalty for qualified individuals under age 59 ½, who take “coronavirus- related” distributions of up to $100,000 in 2020. The distributions are still subject to regular income taxes.
These distributions may be repaid over three years by redepositing any or all the distribution back into their retirement account. The funds can be returned as a single contribution or as a series of contributions made over the three-year time frame starting the day after the distribution is taken.
A taxpayer can elect to have all the income reported in 2020 or may split it evenly between the 2020, 2021 and 2022 tax years.
Required Minimum Distributions (RMDs) Waived In 2020
RMDs on all retirement plans are suspended for 2020. This includes Traditional, SEP, and SIMPLE IRAs, and employer plans such as 401(k)s, 403(b)s and governmental 457(b)s. If you have already taken your RMD for 2020, see additional options in the Myth vs. Truth section of this Newsletter.
Loans from Employer- Sponsored Retirement Plans
Employer-sponsored plans, such as 401(k)s and 403(b)s, may contain loan provisions. If you participate in a plan that includes a loan provision, the CARES Act expanded the availability of these types of loans to the lesser of 100% of the account balance or $100,000. Loan repayment can be delayed for up to one year on loans made through December 31, 2020.
Paycheck Protection Program and Forgivable Loans For Small Businesses
The Paycheck Protection Program is a loan program that allows lenders to issue Small Business Administration (SBA) 7(a) small business loans up to a maximum of $10 million or 2.5 times the average monthly payroll costs over the previous year to businesses that have fewer than 500 employees.
These “businesses” include sole proprietorships and food service business that employ fewer than 500 people per physical location.
The loan proceeds may be used for payroll costs, group health insurance premiums or other healthcare costs, salaries and/or commissions, rent, mortgage interest and utilities.
Borrowers are required to make a good-faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19. The initial round of funding of $350 billion was exhausted in 2 weeks. Congress approved an additional $310 billion in funding on April 23.
Updated Loan Forgiveness Provisions For The Payroll Protection Plan
The amount of the loan eligible to be forgiven is the amount spent during the first 24 weeks (previously 8 weeks) after the loan is made with at least 60% (previously 75%) of the total from payroll. The following are eligible items:
payroll costs, excluding amounts for individuals with compensation greater than $100,000; rent due to a lease in force prior to February 15, 2020; electricity, gas, water, transportation, phone and/or internet access for services which began before February 15, 2020 and group health insurance premiums and other healthcare costs.
To be eligible for forgiveness, the business must keep the same number of employees from February 15, 2020 through June 30, 2020 that it had from January 1, 2020 through February 14, 2020. Any debt forgiven is not included in taxable income.
I must start taking required minimum distributions (RMDs) from Traditional IRAs and employer- sponsored retirement plans (special rules apply if you’re still working and participating in your employer’s retirement plan), and even some inherited Roth accounts by the end of the year in which I turn age 70½.
The Secure Act increased the required minimum distributions (RMDs) age from 70 1/2 to 72 beginning in 2020. The age increase will only apply to anyone born on or after July 1, 1949.
In addition, The CARES Act suspended ALL retirement Required Minimum Distributions (RMDs) for 2020. If you already took your RMD for 2020 and wish to return those funds to the account to avoid paying tax, there are two options.
If the initial distribution was taken within the last 60 days, you may return the funds to the account as a 60-day rollover. You are only allowed one rollover per 365-day period. If you are already outside of the 60-day window and you are able to meet the definition for a coronavirus- related distribution, you would have three years to return the amount you originally received as an RMD. Not everyone will qualify… contact Deb to schedule a free consultation.
Other great articles:
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