Here is what
you need to know.
Provided by Taylor McClish
Financially, many of us associate April with taxes –
but we should also associate April with important IRA deadlines.
April 1, 2020 is the deadline to take your Required
Minimum Distribution (RMD) from certain individual retirement accounts.
A new federal law must be noted here. The Setting
Every Community Up for Retirement Enhancement (SECURE) ACT, passed late in
2019, changed the age for the initial RMD for traditional IRAs and traditional
workplace retirement plans. It lifted this age from 70½ to 72, effective as of
2020.1
So, if you were not 70½ or older when 2019 ended, you
can wait to take your first RMD until age 72. If you were 70½ at the end of 2019, the old rules still apply, and your
initial RMD deadline is April 1, 2020. Your second RMD will be due on December
31, 2020.1,2
Keep in mind that withdrawals from traditional,
SIMPLE, and SEP-IRAs are taxed as ordinary income, and if taken before age 59½,
may be subject to a 10% federal income tax penalty.
To qualify for the tax-free and penalty-free
withdrawal of earnings from a Roth IRA, your Roth IRA distributions must meet a
five-year holding requirement and occur after age 59½. Tax-free and
penalty-free withdrawals can also be taken under certain other circumstances,
such as a result of the owner’s death. The original Roth IRA owner is not
required to take minimum annual withdrawals.
April 15, 2020 is the deadline for making annual
contributions to a traditional IRA, Roth IRA, and certain other retirement
accounts.3
The earlier you make your annual IRA contribution, the
better. You can make a yearly IRA contribution any time between January 1 of
the current year and April 15 of the next year. So, the contribution window for
2019 started on January 1, 2019 and ends on April 15, 2020. Accordingly, you
can make your IRA contribution for 2020 any time from January 1, 2020 to April
15, 2021.4
You may help manage your income tax bill if you are
eligible to contribute to a traditional IRA. To get the full tax deduction for
your 2019 traditional IRA contribution, you have to meet one or more of these
financial conditions:
*You aren’t eligible to participate in a workplace
retirement plan.
*You are eligible to participate in a workplace retirement
plan, but you are a single filer or head of household with Modified Adjusted
Gross Income (MAGI) of $64,000 or less. (Or if you file jointly with your
spouse, your combined MAGI is $103,000 or less.)5
*You aren’t eligible to participate in a workplace
retirement plan, but your spouse is eligible and your combined 2019 gross
income is $193,000 or less.6
Thanks to the SECURE Act, both traditional and Roth
IRA owners now have the chance to contribute to their IRAs as long as they have
taxable compensation (and in the case of Roth IRAs, MAGI below a certain level;
see below).1,4
If you are making a 2019 IRA contribution in early
2020, you must tell the investment company hosting the IRA account which year
the contribution is for. If you fail to indicate the tax year that the
contribution applies to, the custodian firm may make a default assumption that
the contribution is for the current year (and note exactly that to the I.R.S.).
So, write “2020 IRA contribution” or “2019 IRA
contribution,” as applicable, in the memo area of your check, plainly and
simply. Be sure to write your account number on the check. If you make your
contribution electronically, double-check that these details are communicated.
How much can you put into an IRA this year? You can
contribute up to $6,000 to a Roth or traditional IRA for the 2020 tax year;
$7,000, if you will be 50 or older this year. (The same applies for the 2019
tax year). Should you make an IRA contribution exceeding these limits, you have
until the following April 15 to correct the contribution with the help of an
I.R.S. form. If you don’t, the amount of the excess contribution will be taxed
at 6% each year the correction is avoided.3,4
The maximum contribution to a Roth IRA may be reduced
because of Modified Adjusted Gross Income (MAGI) phaseouts, which kick in as
follows.
2019 Tax Year7
Single/head of household: $122,000 - $137,000
Married filing jointly: $193,000 - $203,000
2020 Tax Year8
Single/head of household: $124,000 - $139,000
Married filing jointly: $196,000 - $206,000
The I.R.S. has other rules for other income brackets.
If your MAGI falls within the applicable phase-out range, you may be eligible
to make a partial contribution.7,8
A last reminder for those who turned 70½ in 2019: you
need to take your first traditional IRA RMD by April 1, 2020 at the latest. The
investment company that serves as custodian (host) of your IRA should have
alerted you to this deadline; in fact, they have probably calculated the RMD
amount for you. Your subsequent RMD deadlines will all fall on December 31.2
Taylor McClish may be reached at (503) 239-3060 or Taylor.McClish@cunamutual.com
This material was prepared by MarketingPro, Inc., and does not
necessarily represent the views of the presenting party, nor their affiliates. This
information has been derived from sources believed to be accurate. Please note
- investing involves risk, and past performance is no guarantee of future
results. The publisher is not engaged in rendering legal, accounting or other
professional services. If assistance is needed, the reader is advised to engage
the services of a competent professional. This information should not be
construed as investment, tax or legal advice and may not be relied on for the
purpose of avoiding any Federal tax penalty. This is neither a solicitation nor
recommendation to purchase or sell any investment or insurance product or
service, and should not be relied upon as such. All indices are unmanaged and
are not illustrative of any particular investment.
Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution. CUNA Brokerage Services, Inc., is a registered broker/dealer in all fifty states of the United States of America.
Citations.
1 - marketwatch.com/story/with-president-trumps-signature-the-secure-act-is-passed-here-are-the-most-important-things-to-know-2019-12-21
[1/8/20]
2 - kiplinger.com/article/retirement/T045-C000-S001-the-deadline-for-your-first-rmd-is-april-1.html
[3/29/19]
3 -
irs.gov/retirement-plans/ira-year-end-reminders [11/8/19]
4 -
irs.gov/retirement-plans/traditional-and-roth-iras [1/8/20]
5 -
irs.gov/retirement-plans/2019-ira-deduction-limits-effect-of-modified-agi-on-deduction-if-you-are-covered-by-a-retirement-plan-at-work
[11/18/19]
6 -
irs.gov/retirement-plans/2019-ira-deduction-limits-effect-of-modified-agi-on-deduction-if-you-are-not-covered-by-a-retirement-plan-at-work
[11/18/19]
7 -
irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2019
[11/18/19]
8 -
irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that-you-can-make-for-2020
[11/8/19]