Retirees now can act to change their normal IRA payouts and avoid some income taxes, but they’ll have to be quick.
The Internal Revenue Service this week reminded owners of IRAs and beneficiaries of other retirement plans about the Aug. 31 deadline for halting their scheduled payments from those plans.
Congress suspended the Required Minimum Distributions (RMD) from those plans only for the year 2020. The thought was to help them minimize taxes in these difficult financial times. That waiver was part of the coronavirus relief package called the CARES Act, which is short for Coronavirus Aid, Relief and Economic Security.
Normally a worker or retiree is obliged to withdraw a certain amount of retirement savings – the RMDs — each year after reaching age 70½. However, this year, the law allows them to leave those payments in their retirement accounts. If they already have drawn out their RMDs, they also can return them to the original accounts or roll them over into another tax-deferred retirement plan. the IRS said. Either way, the retirees will protect the money from federal income taxes. The deadline for taking action is Monday, Aug. 31.
It is important to note that this waiver doesn’t apply to Roth IRA accounts, which are not taxed when withdrawn and do not demand RMDs.
In another side note, the IRS said that the waiver also applies to workers/retirees who turned 70½ in 2019, but waited until 2020 to take their distributions.
Eric Buechler, who owns EricJohn Ltd., can guide retirees through the regular and the special cases involved in retirement distributions.