Q: Both last spring, and now again in December, I didn’t receive any “economic impact payments.” It doesn’t make any sense to me. My income in 2020 was way down compared to 2019. Do you have any idea how that could be?
A: Your confusion is completely understandable. You’re absolutely not alone! Let me explain how the stimulus payments actually work.
Congress structured those payments – the one last April/May and the most recent one in December/January – as an “advance” on a tax credit that’s officially applied to your 2020 tax return. But, they wanted to speed up payments to people during the lockdown last spring. And, since they didn’t know what your 2020 income was going to be, Congress simply used 2019 as their “guide.”
It looks like your 2019 tax return disqualified you from receiving the “advanced payments.” The government clearly got the wrong impression about the financial hit you took in 2020. As a result, they didn’t send you those payments in “advance” of your actual 2020 tax filing.
But, don’t worry, the 2020 tax season has now arrived. If your 2020 income was lower than it was in 2019, as you’ve said, you’ll now qualify for the two tax credits of $1,200 (spring) and $600 (winter). When it’s completed, take a close look at your 2020 taxes and see if your tax credits are in there. Better late than never, right?
Q: Is age 70 ½ still an important age when it comes to my annual required minimum distribution (RMD) from my IRA? I turned age 70 ½ last spring, but I didn’t have to take any distributions because of the pandemic. Do I have to take my first RMD in 2021?
A: You are correct that required minimum distributions, known as RMDs, were suspended in 2020. But, you’ve missed a recent change related to the RMD rules.
Back in December of 2019, Congress quietly passed the SECURE Act that changed a number of things to enhance overall retirement readiness. For some reason, this bipartisan bill officially pushed back the age that you are required to start taking distributions (and, therefore, finally paying some tax) from your IRA and other tax-deferred accounts.
Since you were born after June 30, 1949, you don’t actually have to take your first distribution from your IRA until you reach age 72. For those born prior to June 30, 1949, the important milestone remained age 70 ½.
You might wonder, why did they choose such an odd cut-off date of June 30, 1949? Well, that’s officially the last day you could have been born to reach age 70 ½ during the calendar year of 2019.
Side note: There appears to be a movement afoot in Congress to further push out the RMD starting age to 75. If that comes to fruition, it’ll no doubt create some tax and financial planning strategies to consider. Frequent tax law changes and arbitrary complexity certainly breeds job security for paper-pushers, like me!