While most of us can’t wait for the ball to drop next week, it’s an important time to reflect on what’s occurred this year from a financial planning perspective. Let’s not mince words: Economic turmoil, high unemployment, unrelenting food lines, and debilitating disease ravaged the country in 2020. We learned, however, that the stock market and the broader economy serve two different populations. As of this writing, the S&P 500 index is up nearly 15% for the year, with most other averages in the same range. In this article, we look at how those planning for or in retirement can find some solace in the silver linings of the year.
For savers over the age of 72 with traditional IRAs or workplace retirement plans (or for beneficiaries of any age with inherited IRAs), required minimum distributions (RMDs) were suspended in 2020. RMDs are the annual requirement for people to withdraw from their pre-tax retirement accounts and to declare that withdrawal as income in the year of distribution.
Generally speaking, RMDs increase taxable income and have the potential to push you into a higher tax bracket. We all received a reprieve this year. But don’t expect a repeat — barring last-minute legislation to the contrary, RMDs will be back in 2021.