BSB - New Spending Bill May Affect Taxes and Retirement Planning

Prior to 2020, anyone over the age of 70 ½ was required to withdraw a certain amount from their traditional IRAs and 401(k) plans each year. With the passing of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, that age limit was raised to 72.

When the COVID-19 pandemic created economic and financial uncertainty earlier this year, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act which eliminated required minimum distributions (RMDs) for 2020. This was intended to allow retirees extra time to recover lost value from retirement account investments. The Act allowed anyone who had taken a withdrawal between February 1 to May 15 to return the distribution to their IRA by July 15 to avoid taxation on that withdrawal. Since then, updates to the Act now allow rollovers from all distributions from January 1 to May 15. The due date for those rollovers has been extended to August 31.

Additionally, repayment of RMDs under the CARES Act is not subject to the one rollover per 12-month period. The Act also allows for repayment of RMDs from inherited IRAs.

If you have already taken an RMD for 2020, there is time to return it and avoid paying 2020 taxes on that distribution. If you have already spent that money and choose not to roll it back into the account, beware that it will be subject to taxation.

The tax professionals at BSB can help you determine the best plan to make the most of your unique situation. We are staying updated on the latest developments and will continue to provide information as it becomes available. Please contact us today.