The purpose of this disclosure is to explain how we make money without charging you for our content.
Our mission is to help people at any stage of life make smart financial decisions through research, reporting, reviews, recommendations, and tools.
Earning your trust is essential to our success, and we believe transparency is critical to creating that trust. To that end, you should know that many or all of the companies featured here are partners who advertise with us.
Our content is free because our partners pay us a referral fee if you click on links or call any of the phone numbers on our site. If you choose to interact with the content on our site, we will likely receive compensation. If you don't, we will not be compensated. Ultimately the choice is yours.
Opinions are our own and our editors and staff writers are instructed to maintain editorial integrity, but compensation along with in-depth research will determine where, how, and in what order they appear on the page.
To find out more about our editorial process and how we make money, click here.
Some older Americans will get a special tax break this year. But if you’re eligible and you don’t act fast, you could lose it.
Retirees aren’t required to take minimum distributions (RMDs) from their retirement accounts in 2020. If you withdrew money earlier this year and don’t need it to live on, then you have until Aug. 31 to return it if you don’t want those funds counted toward your income for the year.
In a typical year, people age 72 and over must take a set amount of money based on an IRS formula from their retirement accounts and pay income taxes on that money. These withdrawals are Uncle Sam’s way of finally collecting his cut of the savings that’s grown tax-deferred over the decades. But 2020 is hardly a typical year, and in March Congress waived the RMD requirement for all types of retirement plans including IRAs, 401(k)s, 403(b)s, 457(b)s, and inherited IRA plans. (Lawmakers took similar action during the Great Recession, waiving the RMD requirement for 2009.)
Returning an unwanted RMD to your account can save you on income taxes for the year. Also, if your RMD would have pushed you into a higher income bracket for the purpose of calculating Medicare premiums and the portion of your Social Security income that’s taxed, then it could save you additional money.
Fidelity Investments recommends making sure the money is received by the Aug. 31 deadline, not postmarked by then, says Melissa Ridolfi, the company’s vice president, college and retirement leadership. Fortunately, digital banking can make it easy to meet the deadline. Fidelity has seen a sharp increase in customers’ use of mobile check deposits during the pandemic.
Your brokerage firm sends you a Form 1099-R when you withdraw money from your retirement account and a Form 5498 when money is contributed to the account. Hang onto both for when you file your 2020 taxes.
Another key point: Many people automate their RMD withdrawals. Those who turned that function off for this year should make sure to turn it back on for next. The penalty for skipping an RMD is hefty: 50% of the money you didn’t distribute on time. “2021 is around the corner,” Ridolfi says.