Don’t pay tax penalties on money you withdraw from retirement accounts

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If you’re using tax preparation software, the document should print with the word “rollover” entered next to zero, Slott said. Someone filling out a paper form will need to write the word “rollover”. This will treat the withdrawal as a non-taxable event. (Usually, RMDs are not eligible for rollovers, but the IRS has made an exception for 2020.)

Some clients who returned their RMDs had pleasant surprises on their tax returns, Ms. Costa said. Because their taxable income is lower than it would have been, some have been able to deduct medical expenses or even qualify for federal stimulus payments.

But if the minimum cast is not properly flagged as being returned, those benefits could evaporate, Ms Costa said.

“You don’t want to add insult to injury by paying taxes on a cast you’ve returned,” she said.

Here are some questions and answers about RMDs:

Can I keep the retirement withdrawals I made in 2020?

Yes. The return of the money was optional.

Are the RMDs removed for 2021?

No. The exemption only applied to withdrawals in 2020.

When should I start taking RMD?

It depends. A federal law passed in 2019, called the SECURE Act, for Setting Every Community Up for Retirement Enhancement, raised the starting age for taking RMDs to 72, from 70 ½.

The new 72-year-old threshold applies to those who turned 70 and a half after 2019 – or, in other words, to those whose 70th birthday was July 1, 2019 or later. For anyone who turned 70 before that date, the starting age is 70 and a half.


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