These are trying times and we all have information overload, but one small piece of the new emergency tax relief legislation that seems “lost in the sauce” is perhaps the most important for retirees. There was a last-minute push for seniors to be included in the $1,200 relief checks, although if retired and on a fixed income, they are “less affected in theory.” Many are supporting in some way a family member, child, or grandchild, so we believe this was fair and the right thing to do. However, it’s only $1,200, and the real gem for most retires has not been featured much in the media, as our focus has been on our collective health.
IF YOU’RE OVER 70, THIS IS IMPORTANT!
All retirees may skip any RMD from IRAs in 2020! Now in English, if you are at an age that would have otherwise required you to take an RMD, you are allowed this one year to not take any distribution from your IRA, 401k, 403B or any other retirement accounts. Normally, you are forced to take distributions, and if you don`t, you can owe extreme penalties, but as part of the latest emergency packages, it is all waived in 2020! Of course, if you need to have that income than you certainly can take it, but you are not required to!
This is important for many as they have those pre-tax accounts in investments, stocks, bonds, etc., that are likely worth 25% less than before the crisis began, so taking any amount means selling assets when they are worthless. By skipping for instance a $10,000 RMD when your account value is down 25%, you are saving over $3,300 in lost value, assuming the account will recover over time. Of course, we are not giving anyone advice, we are just saying that the fact that you have this option seems lost in the sea of information coming at us all.
Reach out to a tax planner or your advisor and discuss your options around the subject. Perhaps discuss Roth conversions as well, but any conversions should be done by account or ledger transfers, without selling anything.