2020 IRA distribution – DUE Aug 31st!

Uncle Sam wants you to have a comfortable retirement and gives you lots of incentives to help achieve that goal. He’ll let you stash money away without it being taxed for years and years – but not forever.
While you are working you can invest some of your earnings into a 401(k), IRA or other tax-deferred retirement account without the government taxing those earnings. Any growth in the investments remains untaxed till you take the money out.
Until this year, the rule was that at age 70½ you had to start taking required minimum distributions (RMDs) from retirement accounts and pay taxes even if you didn’t need the money. People who inherit a retirement account from anyone other than their spouse are also required to pull money out every year regardless of their age. The rules on RMDs have changed.
First came theSecure Act passed at the end of 2019 that raised to 72 the age at which you must start taking RMDs. Then came the Cares Act in response to the coronavirus. It said that you don’t have to take an RMD in 2020.
If you are one of those rare early-bird non-procrastinators who already took your RMD for this year, you can undo that, as long as you roll the money back into your retirement account by Aug. 31.
The government has also raised the limits on 401(k) loans and loosened the rules on distributions from retirement accounts. People affected by the coronavirus can pull out up to $100,000 without the 10% penalty that normally applies before age 59½.
Another change in RMD rules put in place by the Secure Act ended the so-called “stretch IRA.” Under the old rules, if you inherited an IRA from someone other than your spouse, you were required to take RMDs but could stretch them out over your lifetime.
Here’s how it worked before the change: Let’s say you inherit an IRA from a non-spouse when you’re 60. The IRS estimates you’ll live about 25 more years, so you must withdraw at least 1/25^th of the value of the IRA and pay taxes on it. A year later, the IRS expects you to live 24 years, so you must withdraw 1/24^th, and on and on. At age 84, the IRS estimates you’ll live eight more years, so you must pull out one-eighth of the IRA.
This allows people to stretch out their IRAs beyond their lifetimes and leave them to heirs, possibly creating a family fortune that could last generations. A young grandchild might have a 70-year payout period.
That has changed. The Secure Act eliminated the stretch IRA. Beginning for deaths after Dec. 31, 2019, the stretch IRA was replaced with a 10-year rule for most beneficiaries. The rule requires accounts to be emptied by the end of the 10th year. There are no annual RMDs. Instead, the only RMD on an inherited IRA is the balance at the end of the 10 years after death. For deaths in 2019 or prior years, the old rules still apply.
            There are five classes of “eligible designated beneficiaries” who are exempt from the 10-year post-death payout rule and can still stretch RMDs over life expectancy. These include surviving spouses, minor children, disabled individuals, the chronically ill, and beneficiaries not more than 10 years younger than the IRA owner.
The numbers in this article are estimates. When it comes time to calculate your RMD, see IRS.gov or consult with a tax advisor.
Mark Rosenberg is a California Registered Tax Preparer (CRTP) in Scotts Valley. He can be reached at 831-439-9910 or [email protected] .