Required Minimum Distributions – Updates and Changes for 2020-2021
As the calendar year comes to a close, many people sit down to take the important and meaningful step to make contributions to nonprofit and charitable organizations. With an eye to doing the most good and making the greatest impact, there are tax benefits and implications that need to be considered.
Consulting your tax professional is always the right first step. Each individual financial situation is unique, based on age, income, plans for retirement, and goals and dreams. Careful planning and understanding changes to any tax laws are key parts of the process.
Required Minimum Distributions (RMDs) are mandatory annual minimum withdrawals from your IRA account. The IRS considers these withdrawals as taxable income to the account holder. That tax payment can be avoided by donating funds directly to a qualifying nonprofit organization like ICA Food Shelf. These Required Minimum Distributions (RMD) can be donated in part or whole, up to $100,000 per year. When made through a Qualified Charitable Distribution (QCD), funds go directly to ICA to support our food, housing, and employment services.
In 2020 / 2021, there are two important updates to consider with your tax professional. One is a change going forward, the other is specifically related to the coronavirus pandemic.
SECURE Act
IRS-mandated required minimum distributions (RMDs) from tax-deferred retirement accounts now begin at 72 for anyone who turns 70½ after December 31, 2019.
If you turned 70½ in 2019, the old law still applies and you must take your first RMD by April 1, 2020. If you turned 70½ before 2019, you must continue to take your RMDs by the end of each calendar year. Failure to take RMDs on time results in a 50% penalty on the portion not withdrawn.
CARES Act
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, includes a number of measures designed to stimulate the economy. One item allows retirees to forgo taking RMDs from retirement accounts. This waiver includes IRAs, 401(k)s, Roth 401(k)s, and inherited accounts.
ICA is grateful for our generous community that continues to invest in the well-being of all our neighbors. When donors partner with us in our work and mission, we are able to do great things together. Thank you for considering a gift to ICA Food Shelf!