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What’s new for RMDs?

Trying to figure out the changes in retirement accounts for 2020? For instance, the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, waives required minimum distributions (RMDs) during 2020 for IRAs and retirement plans, including beneficiaries with inherited accounts. This waiver includes RMDs for individuals who turned age 70 ½ in 2019 and took their first RMD in 2020.

Beginning in the 2020 tax year, the new law will allow you to contribute to your traditional IRA in the year you turn 70½ and beyond, provided you have earned income. You still may not make 2019 (prior year) traditional IRA contributions if you are over 70½.

Required Minimum Distributions (RMDs) are now suspended for 2020 for everyone with IRAs and 401(k)-type accounts (but not defined benefit plans) as a result of the Coronavirus Aid, Relief, and Economic Security (CARES) Act that became law March 27, 2020.

Read more about RMDs on the IRS’s website HERE

You have more time to set up a Solo(k)

The Economic Growth and Tax Relief Reconciliation Act (EGTRRA), tax law was amended in 2001.  As a result, self-employed individuals also have access to a 401k.  The one-participant 401(k) plan is not a new type of 401(k) plan. It is a traditional 401(k) plan covering a business owner with no employees, or that person and his or her spouse. These plans have the same rules and requirements as any other 401(k) plan.

Solo 401(k)s are only available to self-employed individuals with no other employees. This allows an account holder to make employee contributions (for a personal tax benefit) and employer contributions (for a business tax benefit) to the same Solo 401(k).

Solo(k) Contributions

2020 100% of Compensation up to $19,500 100% of Compensation up to $26,000 December 31st or the year’s final paycheck
2020 25% of Compensation up to $37,500 April 15th, 2019 (plus extensions)

 

Ask your tax advisor for help with your Solo(k) plan.  A one-participant 401(k) plan is generally required to file an annual report on Form 5500-SF if it has $250,000 or more in assets at the end of the year. A one-participant plan with fewer assets may be exempt from the annual filing requirement.

The new rules are much more user-friendly.  Now, you have until the tax filing deadline or the extension deadline to get the account opened. The year-end deadline to establish an account is abolished.

Establishing a 401(k) Plan for the 2020 Tax Year

Section 201 of the SECURE Act, for taxable year 2020, you can establish the plan up until your tax filing deadline plus extensions.  So that means you can make a 2020 contribution in 2021, up until the tax filing deadline in 2021 (which is usually April 15th).

Read more about Solo 401(k)s HERE

uDirect IRA Services is here to help you with any of your Self-Directed IRA/401(k) questions.  Call us at (866) 447-659 or email us at info@uDirectIRA.com.

Attention:

uDirect IRA Services staff is working both from home and from our offices in response to COVID-19. Rest assured, we are fully operational and ready to help with your retirement needs.