Individual Retirement Account (IRA)
An Individual Retirement Account (IRA) can provide a tax-deferred or tax-free way of saving for retirement.
With a Traditional IRA, you can defer taxes for the dividends on your contributions until they are withdrawn. Also, certain contributions are tax deductible in the tax year for which you make them.
IRA Contributions after 70 ½
For 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs.
The Roth IRA allows only nondeductible contributions and features tax-free withdrawals for certain distributions reasons after a five year holding period. Since Roth IRA contributions are nondeductible and taxed in the year they are earned, if you expect to be in a higher tax bracket when you retire, you may benefit more from a Roth IRA than from a traditional IRA.
You are eligible to establish a Roth IRA if you or your spouse currently have compensation and your modified adjusted gross income (MAGI) does not exceed certain prescribed limits.
The “Coronavirus Aid, Relief, and Economic Security Act” (CARES Act) was signed into law on March 27, 2020. Included in the CARES Act are provisions and changes for IRAs.
Deadline for Contributions to Retirement Plans Extended to July 15, 2020
The due date for filing federal income tax returns is extended until July 15, 2020. As such, the deadline for making contributions to an IRA for 2019 is also extended to July 15, 2020.
Waiver of Required Minimum Distributions
The CARES Act temporarily waives required minimum distributions (RMDs) from IRAs for 2020.
For IRA owners who have already taken their RMD in 2020, the CARES Act does not allow for repayment of the RMD back to their retirement plan. However, there is a 60-day grace period which allows for RMDs to be “rolled over” into a new IRA. This provision allows the IRA owner to avoid paying income tax on the RMD and take advantage of the relief afforded under the CARES Act.
Please contact Goldenwest Credit Union immediately if you would like to take action to forgo your RMD in 2020.
Waiver of Early Withdrawal Penalty
The CARES Act waives the 10 percent early-withdrawal penalty on IRA distributions taken before an IRA owner attains age 59 ½. Under the CARES Act, an IRA owner affected by the coronavirus pandemic can withdraw up to $100,000 in 2020 without incurring the 10 percent penalty. Withdrawals are subject to income tax; however, members can elect to ratably spread the income over a three-year period beginning with taxable year 2020.
Furthermore, if you end up not needing the distribution, you can repay some or all of the distribution back to your plan within three years of receipt.
An IRA owner affected by the coronavirus pandemic is defined as an individual who is diagnosed with COVID-19, whose spouse or dependent is diagnosed with COVID-19, or someone who experiences financial hardship because of quarantine or other coronavirus-related factors.
Retirement Planning Advice
Goldenwest offers free advice from experienced financial professionals. Meet with a free financial advisor for more information on which IRA option you qualify for and what will work best with your retirement plan.