I’m Matt Eggar with Focused Wealth Advisors. The COVID 19 pandemic took front and center in most of our lives. Normally we are coming up on the deadline for people to make their IRA deposits for the year. There were several changes to retirement accounts for this year made through the CARES Act as a result of the pandemic. Some of these changes are significant.
Here are five things that you should know about IRAs for 2019.
- What is an IRA? IRAs are simply financial accounts that you designated as savings for retirement. The federal government gives you preferential tax treatment and also puts in place rules that govern how and when you can access that money and contribute.
- Contribution limits. The contribution limits for 2019 and 20, $6,000 for each respective year with an additional $1000 catch-up contribution if you're 50 years of age or older. If you have questions about how much you can contribute or how much of that may or may not be tax deductible or if you do not qualify for a stimulus check this year because of your income, we should have a conversation before you go much further.
- Deadlines for contribution. The deadlines are very specific now. During any given year, you can contribute for that year. You can also continue your contributions and next year up until your tax filing deadline. Typically, that’s April 15. This year, because of the pandemic, that deadline is extended until July 15. Several of our clients has asked that they can go ahead and make their contribution or open a new account now, so we come up with a socially distant way of doing that through e-signature and setting up the accounts virtually. What’s the benefit? You may believe that the market is low and want to buy now. Others want to try to avoid being a burden on the tax preparation system as people start filing their taxes in June and July in an industry that is really not set up to do business in June and July. Most tax preparers do other work that other nine months of the year that are not filing preparing taxes, and some people just it is a good thing to get out of the way before they returned to work in all the busyness of catching up after the pandemic. If you want to get started, there is a link below.
- Another major change is access your money. Typically you don't want to access your money up until age 59 1/2 because you also incur a 10% penalty in addition to any taxes that you might owe on those withdrawals. Through the CARES Act, the rules for this year have been relaxed. We have some people who lost their jobs and are looking at rolling over money from their 401(k) into an IRA because the IRA gives them the opportunity to pull a little out, take advantage of the special exemption from the 10% penalty tax for early withdrawal, and spread the taxes they end up owing over the next three years. Talk to us if you want to pursue a strategy like this.
- Finally, there are changes to required minimum distributions (or RMDs). The RMD rules were changed under the SECURE Act before the pandemic took over. If you previously going to be required to take a required minimum distribution you can now put it off until age 72. Even if you are planning to withdraw money, it may be better to wait another year than to pull money out when the market is low.
Unprecedented times call for more planning than ever. Feel free to get in touch with us if you would like to get started by visiting our contact page here.
If you would like to establish an IRA and cannot visit a financial institution, follow this link and we can get one set up for you: