TSP

If you’re 72 or older and have an IRA, make sure you take an RMD before the end of the year.

John Grobe

In 2020 we had many tax related changes introduced by the coronavirus aid, relief, and economic security (CARES) act. The consolidated appropriations act (DCAA) made additional changes. Add these to changes made by previous legislation (e.g., SECURE Act, TSPMA, etc.) and it seems that we have more changes than we’ve had in the past. And, like changes in general, some were temporary, and some are permanent.

One temporary change that does not remain in 2021 is the waiver of required minimum distributions from retirement plans (like the TSP) and IRAs. Those who are 72 or older (with few exceptions) must take an RMD for 2021. The Thrift Savings Plan has you covered for your 2021 RMD. If you haven’t taken out enough to meet your RMD by the middle of December, the TSP will send you your RMD by the end of the month. In fact, the Thrift Board recently mailed letters to separated employees who need to take an RMD, telling them how much they need to take out this year.

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IRAs are not as solicitous as is the TSP; if you’re 72 or older and have an IRA, make sure you take an RMD before the end of the year.

For those who itemize their deductions, the floor of adjusted gross income above which medical expenses were deductible has been “permanently” set at 7.5%; the floor had been scheduled to increase to 10%. Of course, you know that changes in tax law are permanent – until they’re not.

If you itemize your deductions, you can deduct up to 100% of your adjusted gross income for cash contributions to charity. This is another item that was extended from 2020.

The ability for those who do not itemize to deduct some charitable contributions was extended into 2021. Single filers may deduct up to $300 and joint filers may deduct up to $600 even if they do not itemize their deductions.

But wait, there’s more! Congress is likely to hit us with more changes some time this year. Late in the last session of Congress the Securing a Strong Retirement Act (SSRA) was introduced with broad bipartisan support. It is likely to be re-introduced with the same level of support and may very well become law this year.

Some of the proposals in SSRA are:

– Increasing the dollar amount of catch-up contributions that can be made to company plans to $10,000 for those 60 and older. No change would be made for those between 50 and 60.

– The age for required minimum distributions would be raised to 75.

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– Lowering the penalty for failure to take an RMD to 25% from the current level of 50%.

– Eliminating the RMD requirement altogether for those with $100,000 or less for both company plans and IRAs.

– Indexing the IRA catch-up contribution for inflation. The current $1,000 limit has been in effect for 15 years (since 2006).

– Retirement plan distributions would be able to be used for charitable purposes, just are IRA distributions are.

It was Ben Franklin who said that nothing can be certain but death and taxes. Congress can change the amount of taxes and the items that are taxed, but they’ll never change the certainty of death.

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