January 1, 2020, ushered in The SECURE Act, which brings significant changes for anyone who has a 401(k), SEP, or IRA, especially those who turned 70 ½ last year. The SECURE Act was created, among other things, to help keep retirees from outliving their savings. But this Act has some unwanted effects for those whom it impacts.
Changes You Should Know About
On January 1, 2020, the age for required minimum distributions (RMDs) from a tax-deferred retirement account increases from 70 ½ to 72. This is good news for those who are still working into their 70s. It means they have another year and a half to make deposits into their 401(k), traditional IRA, or SEP accounts, giving their investments more time to grow before government-mandated withdrawals (and taxes) kick in.
Another change is the lift of the age restriction for traditional IRAs. Before The SECURE Act, taxpayers could not make a contribution to a traditional IRA in the year that they turned 70 ½. The SECURE Act changes that. Now, for tax years 2020 and beyond, you can make contributions to a traditional IRA after the age of 70 ½.
Every Silver Lining Has a Cloud
But here’s the deal. The deadline for making a contribution for the 2019 tax year is April 15, 2020. However, if you turned 70 ½ or older before December 31, 2019, you cannot make a contribution for 2019. In other words, if you had wanted the tax benefit of an IRA contribution in 2019, you should have made the contribution by December 31. If you didn’t know until now…you’re out of luck for 2019.
If all this seems confusing to you, that’s because it’s a complicated issue. Adams Accounting Solutions is here to answer any questions you have about RMDs and how to keep yourself out of trouble with the IRS. Call us today at 913-888-9100.
