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Don’t Pay Tax Penalties on Money You Took From Retirement Accounts

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If you are using tax preparation software, the document should be printed with the word “rollover” entered next to the zero, Mr. Slott said. Someone filling out a paper form has to type the word “rollover”. This treats the deduction as a non-taxable event. (Usually RMDs aren’t eligible for rollover, but the IRS made an exception for 2020.)

Some customers who have returned their RMDs have had pleasant surprises on their tax returns, Ms. Costa said. Because their taxable income is lower than it would have been, some were able to deduct medical expenses or even qualify for federal incentive payments.

But if the minimum distribution isn’t properly reported as returned, those benefits could evaporate, Ms. Costa said.

“You don’t want to offend the violation by paying tax on a distribution you returned,” she said.

Here are some questions and answers about RMDs:

Is it okay if I kept the retirement withdrawals made in 2020?

Yes. The return of the money was voluntary.

Will RMDs be canceled for 2021?

No. The waiver only applied to withdrawals in 2020.

When do I have to start taking RMDs?

It depends on whether. A federal law passed in 2019 called the SECURE Act to set up every community to improve retirement increased the starting age for accepting RMD from 70½ to 72 years.

The new age limit of 72 years applies to people who turned 70½ years old after 2019 – or in other words, to people whose 70th birthday was July 1, 2019 or later. For everyone who turned 70 before this date, the starting age is 70½ years.

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Robert Dunfee