2020 Tax Planning: Maximizing Your Retirement Savings

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By: Eunice Go

Significant retirement savings incentives are currently available under the tax code, including employer-sponsored qualified retirement plans, such as 401(k) plans, and non-qualified plans like traditional and Roth individual retirement accounts (IRAs). Now is as good time as any to review and evaluate your retirement savings and cash in on the benefits available

Saving for Retirement During COVID-19 

Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the US government has developed emergency assistance to help individuals and businesses cope with the COVID-19 pandemicThCARES Act has relaxed three key policies related to retirement savings: 

  1. Waiver of the 10% penalty for COVID-19 related disbursements: The 10% tax penalty on early distributions is waived for people who withdraw money from their retirement plans for qualified COVID-19 uses. These individuals must repay the money withdrawn for COVID-19 related needs within three years. Total COVID-19 distributions cannot exceed $100,000 per individual per tax year, and individuals can include these distributions in their gross income over a three-year span.  
  1. Relief for retirement plan loans: Qualified individuals affected by COVID-19 may now take loans from an employer-sponsored retirement plan of up to the lesser of $100,000 or 100% of the present value of their plan benefits (given that it is no less than $10,000).  
    For qualified individuals that have outstanding loans with repayment due dates falling between the CARES Act enactment date and December 31, 2020, the payment due date will be delayed one year. If the due date is after this period, then the payment due date will be adjusted to 180 days after the CARES Act enactment date. Later payments are also adjusted accordingly.  
  1. Required minimum distributions: Required minimum distributions (RMDs) have been suspended and waived for traditional or Roth IRAs, certain annuity plans, and defined contributions for the 2020 calendar yearThis waiver prevents seniors from having to sell at market lows and allows them to hold onto their plan assets. RMDs must still be taken from traditional IRAs, SEPIRAs, and SIMPLE IRAs by the required beginning date. 
    Additionally, the required minimum distribution age has been increased to 72 for distributions made after December 31, 2019Further, there is no longer an age limitation for contributions to traditional IRAs (made after December 31, 2019). As a result of these changes, it is more advantageous to contribute to retirement plans.  

Tax Planning for your Retirement Savings 

Tax incentives differ based on the chosen investment. Work with an experienced tax professional to create a retirement savings investment plan based on your personal individual tax and financial situation. Your tax professional can also help you take advantage of retirement savings tax incentives, such as tax deductible contributions (money that you add to your retirement savings account), tax deferral on asset growth, and tax-free distributions (money that you withdraw from your retirement savings account)Investors of a certain bracket may also qualify for the saver’s credit. 

Importantly, be sure to make contributions as early as you are able during the year, regardless of the type of contribution. With consistent use of this approach, the benefits will outweigh any last-minute contributions made.  


For help maximizing your retirement savings, contact your trusted Chugh CPAs, LLP professional.