IRA Changes For 2020

 The issue came up last week with a retired client, so let’s talk about it.

What is going on in 2020 with your IRAs?

There are several things here, so let’s go step-by-step:

(1)  Do you have to take a minimum required distribution (MRD) if you turned 70 1/2 in 2020?

ANSWER: No. The new age requirement is age 72.

(2)  What if I turned 70 ½ in 2019 and delayed my initial MRD until 2020?

ANSWER: Thanks to the CARES Act, that initial MRD is delayed one more year – until 2021.

(3)   I am well over 70 ½.  Do I have a MRD for 2020?

ANSWER: No. You can take money out, but you are not required to.

(4)  What if I already took out my MRD?

ANSWER: There are two answers, depending on when you took the MRD.

(a) If you took the MRD in January 2020, there is nothing you can do at this point.

(b)  If you took the MRD after January 31, 2020, you have until July 15, 2020 to return the money.

BTW there is a possible tax trap here. You are allowed only one non-trustee-to-trustee rollover (meaning you received and cashed the check with the intent of paying it back within 60 days) within a rolling 12-month period. If you did this in 2019, you need to check whether you are caught within this 12-month dragnet.

(5)  I have an inherited IRA account. Is there any change for me?

ANSWER: If the decedent passed away before 2020, you do not have an MRD for 2020.

There is a technical point in here if one was waiting five years before emptying the inherited IRS account: 2020 will not be counted as a year. In effect, you now have six years to empty the account rather than five.

(6)  I am having cash-flow issues as a consequence of the virus-related lockdown. I am thinking about tapping my IRA in order to get through. Is there something for me?

ANSWER: There are several changes.

(1) The 10% penalty for pre-age-59 ½ payouts for COVID-related reasons is waived on distributions up to $100,000.

(2) The income tax on the distribution still applies, but the tax can be paid over three years.

(3) And you also have 3 years to put the money back in the IRA. If you do, the money restored will be treated like a qualified rollover.

a.    Remember, this is taking place over 3 years. It is possible that you will have paid income tax on some or all of the money you restore in your IRA. If so, you can file an amended return and get your income tax back.

(7)  I am taking “substantially equal periodic payments” from my IRA. I am under age 59 ½ and needed the money. Is there a break for me?

ANSWER: A SEPP program allows one to avoid the penalty for early withdrawals, but it comes at a price: on has to take withdrawals over a given period of time.

A SEPP is not the same as a MRD, so the new rules do not apply to you.

(8)  Is it too late to fund my IRA for 2019?

ANSWER: Normally, you have until April 15 of the following year to fund an IRA. For 2019, that deadline has been extended to July 15, 2020.