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What the IRA Changes Mean to Your Retirement Account

When do I have to start taking RMDs?

When you have to take Required Minimum Distributions depends on your particular situation. Let’s assume that you are the original account holder; then, you’ll need to start taking withdrawals in the year in which you turn 72. Those who turned 72 prior to April 1 will need to start that calendar year, while those born after April have until April 1st of the following year to start withdraws.

This is the first major change to the RMD rules. Previous tax law required RMDs to begin at the age of 70½. Because the law did not take effect until 2020, those who turned 70½ in 2019 are still required to follow the old laws.

Those who have inherited IRAs will also have to follow new rules in 2020 and beyond. Spouses are allowed to roll over inherited retirement accounts into IRAs in their own name. However, others are limited to electing to take a one-time lump sum or to withdraw the money periodically over a 10-year span.

The 10-year provision is the second major new change to RMD rules and will be used for those accounts inherited in 2020 or later. Those whose account was inherited prior to the law change will still continue to use the laws that were implemented at the time of inheritance.

The penalty for not complying to RMD rules is 50% on the amount you were supposed to withdraw and did not. Your RMD is based on the total balance of all your IRAs as of Dec. 31 of the previous year, and RMDs are required to be taken by the end of each calendar year.

Contributions limits for 2020

The 2020 combined annual contribution limit for Roth and traditional IRAs is $6,000 ($7,000 if you're age 50 or older)—unchanged from 2019. Roth IRA contribution limits are reduced or eliminated at higher incomes. Traditional IRA contributions are deductible, but the amount you can deduct may be reduced or eliminated if you or your spouse is covered by a retirement plan at work. Lower-income taxpayers may be eligible for the "saver's credit" if they contribute to an IRA.

Still have questions?

IRAs are excellent vehicles to save for retirement. But to take full advantage of these accounts and avoid any trouble or penalties be sure to follow the contribution limits, income rules, and deduction limits. Due to these complexities, it may be best to contact a Financial Advisor to be sure you are maximizing your IRA.

Mark Johnson is a financial advisor with Heartland Wealth Management, 3351 W. Rock Creek Road, Suite 130, Norman (www.ramondjames.com/heartlandwm/). He can be contacted at 561.7051 or Mark.Johnson@heartlandwm.com.

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