The pandemic has brought so many changes in the past year, and things haven’t stopped changing since it started! Restaurants and other businesses open and close as restrictions are implemented and lifted over and over!
In particular, two recent developments have affected the finances of most Americans:
First, the federal government passed several major relief bills and also gave provisions of stimulus money for people who are struggling because of the pandemic.
Secondly, the IRS has extended the deadline for federal tax filing to last May 17, 2021.
To know how these two affect your IRA contributions, Axiom Tax Resolution Group, your trusted experts in tax resolution services, shares some helpful information in this article:
You’ve Had Longer to Pay the Tax That You Owe on Retirement Plan Distributions
If you took early distributions either from your IRA or your workplace-based retirement plan last year, you owe 10% added tax on that. But because the deadline was moved to May 17, you enjoyed a longer time to pay that additional tax.
You Might Get Your Tax Waived on Retirement Plan Distributions
If the early distributions that were taken from your retirement account in 2020 were used for a Covid-19-induced challenge, then you are exempted from that 10% added tax. Under the CARES Act of 2020, which is a pandemic relief bill passed in March, there’s a waiver of the tax for distributions up to $100,000 – given that the withdrawals are Covid-related.
On top of that, the CARES Act also states that you can choose to include your distribution in taxable income over three years instead of just one tax year. This should help lower your taxable income for 2020.
Covid Relief Measure Could Help Provide Extra Cash for Your IRA
Lots of Americans got their stimulus checks over the last 12 months. Families with four members might be eligible to collect as high as $5,600 in stimulus payments just from the third round alone. If you can spare it, you can put that towards your IRA.
In March, the American Rescue Plan was signed by President Biden with a relief package amounting to $1.9 trillion – this should serve as provision for people during these extremely tough times. Some of the beneficiaries are those who got unemployment compensation last year and are not exempt from federal income tax. Unemployed taxpayers who don’t need the rebates for their bills or rent can choose to put some of the money they get into their retirement fund.
What About Retirement Savings in 2021?
The limits on retirement savings amount for this year are the same as last year’s. However, the allowable maximum income levels that will make deductible contributions to IRAs go up this year. It should also be noted that there would be no provision for tax relief on those early distributions that are taken from retirement accounts this year. Also, those who are at retirement age are still required to take RMDs again.
These are just some of the things that you need to know about the changes that are brought about by the COVID relief bill and how it impacts your IRA Contributions. Of course, these things can be quite overwhelming, and you don’t want to end up with tax problems because you didn’t understand the changes that have been implemented.
That is why it’s important to get tax resolution services from a reputable company like Axiom Tax Resolution Group. We can help you get on top of your taxes and avoid any problems with the IRS. Contact our team today to find out how we can help yoU!