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Get Your IRA contributions for 2019 in Before July 15

The Discerning Investor by by Julie Jason
by Julie Jason
The Discerning Investor | July 3rd, 2020

If you have not made your 2019 IRA contribution yet, you are not alone. According to Fidelity Investments, the nation’s largest IRA provider, an increasing percentage of investors are making contributions to their IRAs during the last three weeks before the tax deadline -- this year, that deadline is July 15.

Due to the COVID-19 pandemic, both the IRA contribution deadline and the 2019 tax filing deadline were postponed to July 15. The July 15 date is good for this year only. Normally, the cutoff is April 15 for contributions for the prior tax year (and for filing your prior year’s tax return).

More than a third (34%) of tax season contributions came in right before the tax deadline in 2019, according to Fidelity. In May of this year, almost 51,000 clients made prior-year contributions to an IRA.

Let’s go over some IRA basics. For details, I highly recommend reading the official source: IRS Publication 590-A “Contributions to Individual Retirement Arrangements (IRAs) for use in preparing 2019 Returns” (tinyurl.com/jortqhl).

Starting in 2020, as long as you are still working, there is no age limit to be able to contribute to an IRA, thanks to the SECURE Act, which was signed into law in 2019. Before this change, the age cutoff was 70½. By the way, if you visit an IRA custodian website to do your research, be aware that some have not been updated to reflect this and other changes as a result of the CARES Act, which became law on March 27, 2020, and the SECURE Act.

Who can set up or contribute to an IRA? In general, anyone who earns money through a gig or a job can contribute to an IRA.

How much can you contribute to an IRA? The maximum you can contribute for 2019 is $6,000 ($7,000 if you are 50 or older).

What type of IRA is best? Most taxpayers have two choices: either a traditional IRA or a Roth IRA.

The important difference between the two types of IRAs has to do with taxes. Traditional IRAs are tax-deferred (meaning you pay taxes later when you start taking withdrawals). Deferrals don’t last forever -- withdrawals are mandated after age 72 (called “required minimum distributions,” or RMDs), and subject to severe penalties if not taken on time and in the right amount.

Roths are tax-free. That is, unlike the traditional IRA, “qualified distributions” are income-tax-free. Like the traditional IRA, no income taxes are triggered by income earned or capital gains realized during the time you own the IRA. Unlike traditional IRAs, the owner of a Roth IRA is not subject to RMDs (though beneficiaries of inherited Roth IRAs are subject to RMDs).

Can you get an income tax deduction? When you contribute to a traditional IRA, your contribution could be tax-deductible and also benefit from a tax credit, but only if you fall under IRS income limits. I must admit that I have to look up those limits every time I’m dealing with the subject, and I recommend you do the same. They change over time.

You’ll find both 2019 and 2020 limits in the most recent IRS Pub. 590-A (for 2019). The limits for deductibility are tied to your income and tax status (filing jointly with your spouse, filing separately, as head of household or individually), and whether you are covered by a 401(k) or other retirement plan at work.

There are also income limits on who can contribute to a Roth IRA, but as of a few years ago, there are no income limits that prevent you from converting from a traditional IRA to a Roth.

From my perspective as a personal money manager to high-net-worth families, I like to see people saving as much as possible -- maxing out their 401(k)s at work and their IRAs as well. While you are making your 2019 contribution, think about making your 2020 contribution as well, but be sure to notify your custodian of the tax year that applies to each contribution. The maximum you can contribute for 2020 is also $6,000 ($7,000 if you are 50 or older). That means if you haven’t done your 2019 contribution and wanted to maximize your savings, you could contribute a maximum of $6,000 per tax year ($12,000 for both years or $14,000 if you are 50 or older).

Send me questions about IRA contributions that I can answer in the column by emailing me at readers@juliejason.com. Please remember to tell me the city and state you are writing from, and the name of your newspaper.

Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (readers@juliejason.com). Please visit www.juliejason.com.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION

RetirementAgingMoney
life

Good News for Early Bird RMDs

The Discerning Investor by by Julie Jason
by Julie Jason
The Discerning Investor | June 26th, 2020

When I wrote about the suspension of required minimum distributions (RMDs) for 2020 by the CARES Act, which was signed into law on March 27, I received a number of emails from readers who could not take advantage. They had taken their RMDs earlier in the year, and there was no way for them to redeposit their RMDs if they couldn’t meet the rollover rules, which had two barriers: a 60-day time limit and a once-in-a-12-month-period limitation.

W.E. was affected: “My 2020 RMDs were received after the 2020 RMD Suspension was retroactively in effect, but before it was announced on 3/27/2020. Since the suspension of 2020 RMD was intended to benefit all seniors by reducing their 2020 tax burden and help to preserve their battered 401(k)s, I feel that I should be entitled to take full advantage afforded me being able to return and reverse my 2020 RMDs.”

He continued, “Can you make any suggestions on how seniors in my position, having received multiple suspended 2020 RMDs before the 2020 RMD Suspension was announced, can receive fair treatment and fully benefit from the CARES ACT?”

W.E., I have good news for you. On June 23, 2020, the IRS came through when it issued Notice 2020-51, which you can find here: tinyurl.com/y8o2zxjp.

The 60-day rollover period for RMDs in 2020 has been waived as well as the 12-month rule for anyone who has taken their RMDs so far this year. But, you have to do the rollover before Aug. 31.

First, any taxpayer who is subject to RMDs in 2020 from a defined-contribution retirement plan, including a 401(k), 403(b) plan, or an IRA (but not a defined benefit plan), can skip RMDs this year. This includes anyone who turned age 70 1/2 in 2019 and would have had to take the first RMD by April 1, 2020.

Second, anyone who took RMDs in 2020 and would like to “undo” them has until Aug. 31, 2020 to redeposit the RMDs. That is, an IRA owner or beneficiary who has already received a distribution from an IRA of an amount that would have been an RMD in 2020 can repay the distribution to the IRA by Aug. 31, 2020. There is no limit on the number of rollovers if you withdrew moneys multiple times or from multiple IRAs and other tax deferred accounts.

The notice also makes clear that RMDs from inherited IRAs are also eligible to roll over under Notice 2020-51.

R.R. wrote: “I am 77 years old with my birthday in December. I have been taking the RMD since I was 70 1/2.” R.R. then asked an important question: If he doesn’t take his 2020 RMDs, will he be required to take two RMDs in 2021? The answer is no. This is a suspension of 2020 RMDs, not a delay.

L.B. wrote: “I moved a large sum of money from my IRA into my cash account on Jan. 2 this year. With the new ruling I'd like to move it back to my IRA. Can I?” Now that we have Notice 2020-51, the answer is yes, but you must act before Aug. 31.

J.B. wrote: “I am 77 years old and have been taking my RMD the last four years. This year with the break on RMDs, I plan to roll some money over from my traditional IRA into my Roth IRA and still keep within my tax bracket. Normally I would have to take my RMD before I could do a rollover.” He then asked: Can he use the withdrawal to do a taxable Roth conversion? The answer is yes. Since the RMD he took in 2020 no longer has the character of an RMD (since RMDs are suspended), there is no restriction against using those moneys to convert to a Roth.

So, all in all, very good news for early bird RMDs. We can all agree with Melissa Ridolfi, the vice president of retirement and college products at Fidelity Investments, who said, “The fact the IRS has extended the date for retirees to repay a distribution into their IRA -- up to August 31 -- is welcome news.”

For a quick video that covers the topics we’ve discussed in today’s column, go to vimeo.com/432667715/e74f8e0997.

Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (readers@juliejason.com). Please visit www.juliejason.com.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION

RetirementCOVID-19Money
life

That EIP Debit Card May Be Legit

The Discerning Investor by by Julie Jason
by Julie Jason
The Discerning Investor | June 19th, 2020

Have you received a plain envelope containing a Visa debit card from Money Network Financial? A few readers have shown me their letters, and I must say, the first question that comes to mind is whether it’s legit. After all, my readers didn’t apply for a debit card -- and who is Money Network Financial?

One of the readers received an enclosure that said:

“Enclosed is your Economic Impact Payment Card. This prepaid debit card is being sent to you on behalf of the U.S. Department of the Treasury in place of a paper check. This card contains the money you are receiving as a result of the Coronavirus Aid, Relief and Economic Security Act (CARES Act).”

Then it offers additional information on the economic impact payments (EIPs) at IRS.gov/EIP, and it refers to instructions to activate the card at EIPCard.com.

Yes, this happens to be an official card. But be aware that the IRS is cautioning about scams.

Here is what I’d like you to do: Visit the IRS’ Economic Impact Payment Information Center at tinyurl.com/tbhar5r.

There you will find a series of questions and answers. Look at Q48. It turns out the Treasury Department’s Bureau of the Fiscal Service hired Money Network Financial LLC to do the card servicing; the Visa card is issued by the Treasury’s financial agent, MetaBank, N.A.

The card arrives in the mail in a plain envelope from “Money Network Cardholder Services.” Visa is stamped on the front of the card; the back of the card has the name of the issuing bank, MetaBank, N.A.

Since security is on everyone’s mind, the IRS will follow the card with a letter to explain the payment -- and instructions on what to do if you did not receive it. If a taxpayer is unsure that the letter is legitimate, the IRS urges taxpayers to visit IRS.gov first to protect against scam artists.

As to scams, if you get a call, text, email or a social media contact asking for personal or bank account information related to economic impact payments, that’s a scammer. The IRS also cautions you to “watch out for emails with attachments or links claiming to have special information about economic impact payments or refunds.” Again, those are scammers, not the IRS.

What if you don’t want a debit card? In the answer to Q49, the IRS says that you can go online to EIPcard.com or use the Money Network Mobile App to transfer the debit card balance to your bank account. You will need your bank’s routing and account numbers.

Want to double-check your payment amount? Review Q24, “How do I calculate my Economic Impact Payment?” What if you received less than you think you should have? Perhaps you were due qualifying child payments that were not included. According to the answer to Q32, you will be able to claim the additional amount when you file your 2020 tax return. Make sure to keep the notice you received regarding your economic impact payment with your 2020 tax records (the notices are mailed to each recipient’s last known address within 15 days after the payment is made).

Will an economic impact payment increase your taxable income? Q34 confirms that the answer is “no.” The payment is not considered part of your gross income. Therefore, you will not include it on your federal income tax return or pay income tax on it. The payment will not reduce your refund or increase the amount you owe when you file your 2020 federal income tax return, and it will not affect your income for purposes of determining eligibility for federal government assistance.

What if you don’t want your EIP? You can reject it; no hard feelings. In Q64, you’ll see that you can send the card back if you want to return the money to the IRS and NOT have the payment reissued.

For a quick video that covers the topics we’ve discussed in today’s column, go to vimeo.com/430839995.

Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (readers@juliejason.com). Please visit www.juliejason.com.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION

MoneyCOVID-19

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