The CARES Act of 2020 allowed retirement plan participants and IRA owners to withdraw from their accounts much more than was normally permitted. It also allowed the taxes owed on those withdrawals to be spread over 3 years and waived the 10% penalty if they were under age 59 ½. Finally, it waived the required minimum distributions for those over the age of 72. Well, all good things must come to an end.
Those withdrawal rules have now reverted back to pre-covid times. Here’s the deal:
- Any withdrawals that you take from your IRA, or a retirement plan if the plan allows it, are added to your income for that year.
- If you’re under age 59 ½ when you take the withdrawal, you will be hit with a 10% tax penalty on top of the normal income taxes due.
- Required minimum distributions (RMDs) must be taken from your IRA or a company-sponsored retirement plan once you turn age 72.
- RMDs are not required to be taken from a retirement plan if you are still working where the plan is, even past the age of 72, unless you are an owner of the company.
Because there are so many exceptions and caveats to these rules, it is best to consult with a tax expert before taking any action. Let me know if you have any questions!
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
