Retirement Tax Return Mistakes to Watch For
Dana here.
The first quarter of the year is always our busiest. This year we were so busy that February was the last newsletter I was able to write. And we are all at capacity, so we’ve postponed scheduling any new introductory meetings until after June 1st.
The good news is, should you become our client, you will be our number one priority. We will protect our resources to ensure we can fulfill our commitments to existing clients before we open up our time for potential new clients.
What makes the first quarter of each year so busy? We spend many hours corresponding with clients and their CPAs regarding tax-related items. When you are taking distributions from retirement accounts, it can get complicated. And in 2020, temporary rules that allowed CARES Act distributions and waived Required Minimum Distributions (RMDs) made it more complex than ever.
For example, what if someone took their RMD early in 2020, then the pandemic came, and the IRS waived RMDs for the year, so they put their RMD back? Will this distribution show up on their 1099-R issued by their IRA custodian? The answer is yes. So you can’t just hand the 1099-R tax form to your tax preparer or type the numbers into tax software and expect the output to be correct. You have to know that the distribution reported on the 1099-R was put back into the IRA, so it is not taxable. The RMD had to be returned to the account by 8/31/2020 for this to apply in 2020.
There was also a special 2020 CARES Act provision that allowed you to take up to $100,000 out of your IRA penalty-free (yes, even if you were under age 59½) and spread the taxation of the income over three years. Once again, the only item reported on your 1099-R is the total amount of the distribution. You or your tax preparer would have to specify that the distribution was eligible for CARES Act treatment and determine what portion is taxable in the current year.
Many clients’ CPAs correspond with us directly, with the client copied, to work out these details during tax time.
Qualified Charitable Distributions (QCDs) from an IRA can also cause income to be reported incorrectly. QCDs allow you to donate to a charity by issuing a check from your IRA. Unlike a regular IRA distribution, the QCD amount is not to be included in your adjusted gross income. Suppose someone used this provision to send $10,000 from their IRA to a charity. The $10,000 will be reported on the 1099-R as a distribution; you have to recall what it was for and let your tax preparer know that it is not taxable.
I made a short video with Bob Powell of The Street.com where we discuss these items and a few more common 1099-R mistakes. Bob has also joined us as our Director of Retirement Education, and we’ll be sharing many more educational videos as we go along.
Speaking of education, we had hundreds of attendees for our January webinar, How to Make a Retirement Income Plan. Carve out an hour and a half and check it out – it’s packed full of great information.
If you’re trying to work out how to estimate your retirement budget, this shorter, 45-minute webinar covers How to Build a Retirement Spending Plan.
And coming up next on May 20th is our free webinar How to Make an Investment Plan. When you register, we do not add you to any marketing or mailing lists. And if you register and can’t make it, once the recording goes live, we’ll email you a link so you can watch it later.
As you likely know, we can work with clients in any state. If you are thinking about hiring a retirement planner, we urge you to plan ahead. Just this week, we had to turn down a request from someone who had a decision to make by the end of the month. We could not take it on right now.
With increased stock market and real estate values, baby boomers reaching age 65 in peak volumes, and changing views about work-life balance, stats show more people are retiring than ever. Many of our colleagues at other firms are reporting they are as busy as we are. You don’t want to wait until the last minute to do your retirement planning. To learn more about our services, start with our Frequently Asked Questions.
Happy spring and we hope to see you joining us on a webinar soon.
Next Free Online Webinar: How to Make an Investment Plan
What investments should you buy? When should you buy them? How long do you hold them? Is it foolish to own bonds right now? What about crypto, is it a fad or the next big thing?
In this webinar, we provide you with a framework to help you answer these questions and develop an investment plan that fits your goals, time horizon, and future cash flow needs.
We'll cover:
• Key components to an investment plan
• The impact of taxes
• When to buy and sell
• What do when the media says “Bonds/Stocks/Real Estate/Gold/Crypto are/ are not the place to be these days.”
• How investment plans should vary based on your goals
We will leave plenty of time for questions and answers at the end.
When: Thursday, May 20th at 5 pm AZ/7 pm CST/8 pm EST
You can register at: How to Make an Investment Plan
Podcasts & Video
Successful Retirement Podcast
Stacking Benjamins is one of the most entertaining financial podcasts we’ve found. In this episode Dana was honored to be a guest discussing 10 Lessons for a Successful Retirement. There are lots of laughs and diverse views. Take a listen and see what you think!
10 Lessons For A Successful Retirement
Love It Or List It
Amy Shepard of Sensible Money examines what to consider when deciding whether to relocate or renovate your home.
Love It Or List It
Don't Cheat Yourself With the 4% Rule!
If you missed our last webinar, or any of our past webinars, you can watch on our YouTube channel.
Don't Cheat Yourself With the 4% Rule!
Sensible Money in the News
Dana contributed to this article from Forbes: "A Second Look: Four Retirement Rules Of Thumb"
Dana also contributed to this article from MSM.com: "Turn Your $50K Salary Into a $1M Retirement Fund"
Dana was also quoted in this article from U.S. News & World Reports: "What to Know About Platinum Investments"
Financial Sense is an almost-monthly publication of Sensible Money. It's about financial planning and smart money decisions, not sensation and hype. You know.... sensible.
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