Retirees: The IRS Doesn't Care About This in 2020, but It Will in 2021
For people over 72 with tax-deferred individual retirement accounts (IRAs), required minimum distributions (RMDs) are a part of annual income planning and tax budgeting. RMDs require the account holders (or beneficiaries, if the account is inherited) to take a distribution based on their remaining life expectancy.
The reasoning is clear: A portion of money that was once tax-deferred is now required to be recognized as current income so that the IRS can finally be paid its tax revenue. For 2020, however, this requirement has been suspended. You can breathe easy if you haven't taken your RMD yet this year and hadn't been planning to take one before Dec. 31.
While government-induced pandemic relief has been short-lived and limited in impact, Congress did enact legislation to suspend mandatory retirement account withdrawals in 2020 via the CARES Act. Money held in tax-deferred retirement accounts, including nondeductible IRAs, 401(k)s, 403(b)s, and inherited IRAs, is typically taxed upon withdrawal. Any withdrawal from these accounts results in taxable income in the year of distribution, which yields revenue for the IRS. RMDs force account holders to initiate annual withdrawals from these accounts once they turn 72, or immediately if the account is inherited.
Source Fool.com
