2020 Retirement Changes
New Rules in 2020 for Retirees
The year 2020 has brought us many things, including changes and relief when it comes to distributions from retirement accounts. It is still not too late to make some tax planning moves in this area.
For years now, it has been the rule that anyone over 70 ½ must take required minimum distributions (RMDs) from their retirement accounts each year. However, a new law was passed that makes significant changes to this rule and the related tax planning.
Beginning age for RMDs raised to 72
The SECURE Act passed in December 2019 increased the age for RMD requirements to 72 for anyone who’s 70th birthday is after July 1, 2019.
Planning Point: You can still take retirement distributions, but they are not required until the year you turn 72.
IRA Contributions Post 70 ½
The SECURE Act also removed the rule that eliminated IRA contributions after you reach age 70 ½. Now you can make an IRA contribution at any age if you have earned income (wages, etc).
Planning Point: The reasons for contributing to an IRA after retirement may be limited, but this can still be useful. Any IRA contributions are a dollar-for-dollar reduction in RMDs. Also, IRA contributions later in life may be helpful if your goal is to pass your IRA on to future generations.
Qualified Charitable Distributions
The SECURE Act raised the RMD age to 72, but it did not make any changes to the qualifying age for qualified charitable distributions.
Planning Point: The prevailing thinking has been that you had to be taking RMDs in order to make donations to qualified charities directly from an IRA. Now, these charitable distributions of up to $100,000 per taxpayer each year can be made once you reach 70 ½, regardless of RMDs.
Suspension of 2020 RMDs
The CARES act waived the requirement for RMDs to be taken from retirement accounts for 2020.
Planning Point: Relief from RMDs for a year can be nice in certain situations. If you have enough income or assets to maintain your lifestyle without retirement plan distributions, there is no need to take them. Distributions just create more income tax. In other cases, taking distributions may be helpful. Taxpayers with low taxable income may be able to take retirement distributions with low or even no tax. Removing money from a retirement account can also lower the amount of RMDs in later years. Remember, just because funds are taken from a retirement fund, doesn’t mean they have to be spent. They can be invested in other ways.