If it weren’t the year 2020, right around now, I would be cautioning IRA owners over 70 1/2 to make sure they withdrew their required minimum distributions (RMDs) from their individual retirement accounts.
But because it is 2020, let me remind you instead that RMDs are waived for this year. That waiver became law in March, thanks to the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act waived RMDs for 2020 for traditional IRA, SEP, SIMPLE, 401(k) and other defined contribution plans, but not for defined benefit plans.
In 2021, we’ll go back to “normal.”
The annual RMD is mandated by law, not optional, with serious financial penalties for not taking your RMD on time. As the IRS explains online at tinyurl.com/zn7ckor, “If you do not take any distributions, or if the distributions are not large enough, you may have to pay a 50% excise tax on the amount not distributed as required.”
If you are a regular reader of this column, you’ll recall that the law created some difficulties for those who took their 2020 RMDs before March. It took some time for the IRS to provide a mechanism for people to undo their RMDs if they wanted to do so. The relief come on June 23, with IRS Notice 2020-51 (tinyurl.com/y8o2zxjp), allowing people to redeposit their RMDs through a rollover, as long as it was accomplished by Aug. 31, 2020. (If you took a 2020 RMD later in the year and want to redeposit it before year-end, check with your accountant.)
There have been other changes in RMD rules that will take effect in 2021. The Setting Every Community Up for Retirement Enhancement (SECURE) Act, which was signed into law Dec. 20, 2019, moved the age for starting RMDs from age 70 1/2 to age 72. (Read my column on the subject at tinyurl.com/yxb95bh3). If you were born in the last half of 1949 (after June 30), you will turn 72 in 2021 and qualify under the new RMD rule. If you were born in the first half of 1949, you fall under the old 70 1/2 rule.
I should mention that more changes might be coming. A bill was introduced by House Ways and Means Committee Chairman Richard E. Neal, D-Mass., and ranking member Kevin Brady, R-Texas, in October called the Securing a Strong Retirement Act of 2020 (tinyurl.com/yywwgy7v). Among the many proposed measures in the bill is one increasing the age for taking your first RMD to 75 years old.
From my perspective, that’s a good move, and in fact, I’d like to see RMDs suspended to age 90.
For now, expect RMDs to go back to “normal” in 2021, meaning no waivers. Keep in mind that the age 70 1/2 rule still applies to QCDs (qualified charitable distributions). I wrote on that subject in October; let me know if you would like a copy of that column.
On another note, last week’s column triggered a question about the new “above-the-line” $300 tax-deductible charitable contribution for 2020: Is the $300 doubled for married couples filing jointly? According to the IRS draft for the 2020 instructions for forms 1040 and 1040-SR (tinyurl.com/jlzynap), on Page 29 it states, “$300 is the most you can enter on your return even if your filing status is married filing jointly.” As of this writing, a finalized version of the instructions has not been posted. Check with your accountant for more information.
Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (firstname.lastname@example.org). Please visit www.juliejason.com.
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