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Strategies for Minimizing RMDs

June 14, 2021

The CARES Act suspended required minimum distributions (RMDs) from IRAs and qualified retirement plans in 2020. No such relief was provided for 2021, however, so if you’ve already started taking RMDs or if you’ll turn 72 by December 31, 2021, you’ll need to take an RMD this year (or by April 1, 2022, if it’s your first RMD) and pay tax on it. Now’s a good time, therefore, to consider strategies for reducing or eliminating RMDs. Options include:

  • Performing a Roth IRA conversion. Although the conversion will trigger income taxes on the converted amount, it’ll eliminate the need to take RMDs in future years.

  • Naming a younger spouse (by more than 10 years) as sole beneficiary. Doing so allows you to shrink RMDs by spreading them out over your joint life expectancies.

  • Continue working. Doing so may allow you to delay RMDs from your current employer’s qualified retirement plan, though it won’t affect RMDs from IRAs or previous employers’ plans.

  • Enter into a Qualified Longevity Annuity Contract (QLAC). This year, you can fund a QLAC with up to 25% of your retirement account balance or $135,000, whichever is less, and defer RMDs on those funds until annuity payments begin at age 85.

Are your online sales taxable?

If you sell items via ebay, Etsy or other similar online sites, the payments you receive may be considered taxable business income. But even if your profits from these activities are substantial, historically they’ve been difficult for the IRS to discover. That may no longer be the case, however, starting next year. Currently, online sales platforms that use third-party transaction networks (such as PayPal) are required to send you Form 1099-K, and file it with the IRS, if you engage in a minimum of 200 transactions totaling at least $20,000. But starting in 2022, this threshold will drop to only $600, with no transaction minimum. Keep in mind that, depending on your situation, your sales may or may not be taxable, regardless of whether you receive Form 1099-K. So, if you engage in significant online sales, consult your tax advisor to discuss your tax obligations.

Paid sick leave and paid family and medical leave credit extended

Legislation passed in 2020 required private businesses with fewer than 500 employees to provide paid sick leave and paid family and medical leave to certain employees affected by the COVID-19 pandemic, offset by refundable payroll tax credits. In the Consolidated Appropriations Act, Congress declined to extend mandatory paid leave into 2021, but made tax credits available to private businesses, with fewer than 500 employees, that voluntarily offered similar paid leave through March 31, 2021. The American Rescue Plan Act extended this benefit through September 2021.

This material is generic in nature. Before relying on the material in any important matter, users should note date of publication and carefully evaluate its accuracy, currency, completeness, and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances.

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