Leverage 2020 Tax Breaks for Your Retirement Planning
Based on the COVID-19 effect on our economy, the government created the Coronavirus Aid, Relief and Economic Security Act (CARES Act) to provide 2020 tax breaks and some changes to tax rules. These changes may help with your retirement planning strategies.
One of the biggest changes involves required minimum distributions (RMDs) as you do not need to withdraw money from retirement accounts until age 72 instead of the previous requirement of age 70½. As an added benefit, retirees do not have to take an RMD out this year whether aged 72 or if you are younger/older. However, you are welcome to take the RMD as needed to pay off bills or even place into a safer product such as a fixed indexed annuity.
If your life has been affected by the COVID-19 pandemic, you also have the option to withdraw up to $100,000 from an IRA and/or 401(k) plan without penalty (even if you are under age 59 ½). Understand that affected by COVID-19 involves either being diagnosed with the coronavirus, losing a job through layoffs, or other qualifying circumstances. As another clarification, you won’t have to pay the early withdrawal penalty (if you are age 59½ and under) but you must pay the income tax on this withdrawal.
Another tax break involves deductions. Do you itemize your deductions? For this year, single filers’ deduction is $12,400 and married joint filers’ deduction is $24,800. You also can take up to $300 for charity cash contributions with the standard deduction.
These tax breaks can help you position your retirement planning toward a positive future in hopes of leveraging these new rules before you file the paperwork before April 2021. With a tumultuous market and economy, you may want to consider a withdrawal and placing your funds into an annuity to protect your savings. An annuity also will give you guaranteed lifetime income – and is one of the only products that provides that retirement benefit.
To learn more about these CARES Act revisions to taxes, you should consult with your licensed tax professional. Annuity Alliance does not provide tax planning advice or services.
If you would like to review some annuity options, please contact Annuity Alliance to get connected with a licensed professional.