This follows my column from last week about required minimum distributions (RMDs) returning in 2021 after a waiver in 2020.

If you are wondering whether you are making the right decisions about your retirement account withdrawals, it may help to know what other people do.

A recent survey of members of the American Association of Individual Investors (tinyurl.com/y4l7fbxu) can be a guide. The AAII is a nonprofit that helps individuals manage their assets through research, information and education programs.

Keep in mind that retirement account withdrawals are mandated by law after a certain age (70 1/2 if you were born in the first half of 1949 or earlier; 72 if you were born in the second half of 1949 or later). The amount of the withdrawal is determined by a formula that sets the minimum you must withdraw each year to avoid a hefty penalty -- a 50% excise tax on the amount that should have been withdrawn but was not.

It's interesting to note that when AAII survey respondents were asked about their withdrawal strategy, the most popular answer (45%) was to “simply take the minimum amount required by the tax code.” Two out of five respondents gave their reason for their current strategy as being “a desire to limit withdrawals to what government requires.”

That’s not a surprise, since taking more than the RMD, which is always an option, increases the amount that is reported to the IRS on your Form 1099-R as taxable income. There are some exceptions. For example, Roth IRAs do not trigger an income tax when you withdraw money (nor is the Roth IRA owner subject to RMD requirements for the Roth IRA).

Forty-one percent of survey respondents withdrew only their RMDs, no more. That could be a good strategy, as long as the retiree realizes that he or she should think twice before relying on the RMD to cover living expenses over the years.

If you look at how RMDs are calculated, you’ll understand that the goal of the RMD tables that drive withdrawal calculations is to deplete the IRA over time. That is, the older you are, the higher the percentage withdrawal.

When you are age 75, the RMD divisor is 22.9 (which translates into 4.4%). When you are age 85, the divisor is 14.8 (6.8%); at age 95, the divisor is 8.6 (11.6%); and at age 105, the divisor is 4.5 (22.2%). Again, the older you are, the higher the percentage withdrawal.

These divisors are set out in an IRS worksheet at tinyurl.com/nby6fxh, which applies to most people for calculating RMDs. (There is another worksheet that you would use if your spouse is your sole beneficiary of your IRA and he or she is more than 10 years younger than you.)

Let’s see what the divisors might mean to you in dollars.

Say your value on Dec. 31, 2020, is $1 million, and you are age 75. Your 2021 RMD will be $1 million divided by 22.9, or $43,668 (4.4% of $1 million).

To see the impact of the divisors over time, assume your IRA 1) does not grow and 2) is reduced each year by the previous year’s RMD.

At age 85, your withdrawal would be just over $39,000, based on your previous year’s value of $579,634. At age 95, your RMD would be about $27,000. At age 105, the RMD would be about $9,400. Again, this shows how RMD percentages work when the IRA has no growth -- it also shows you how important it is to invest your IRAs wisely in order to keep the IRAs from depleting over time.

When the AAII survey’s respondents were asked how confident they were about keeping a comfortable lifestyle for the rest of their retirement, 75% said they were “very confident,” and 15% said “somewhat confident.”

Confidence is good, but make sure it is bolstered by a strong RMD strategy.

Write to me if you’d like to discuss RMDs at readers@juliejason.com.

Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (readers@juliejason.com). Please visit www.juliejason.com.

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If it weren’t the year 2020, right around now, I would be cautioning IRA owners over 70 1/2 to make sure they withdrew their required minimum distributions (RMDs) from their individual retirement accounts.

But because it is 2020, let me remind you instead that RMDs are waived for this year. That waiver became law in March, thanks to the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act waived RMDs for 2020 for traditional IRA, SEP, SIMPLE, 401(k) and other defined contribution plans, but not for defined benefit plans.

In 2021, we’ll go back to “normal.”

The annual RMD is mandated by law, not optional, with serious financial penalties for not taking your RMD on time. As the IRS explains online at tinyurl.com/zn7ckor, “If you do not take any distributions, or if the distributions are not large enough, you may have to pay a 50% excise tax on the amount not distributed as required.”

If you are a regular reader of this column, you’ll recall that the law created some difficulties for those who took their 2020 RMDs before March. It took some time for the IRS to provide a mechanism for people to undo their RMDs if they wanted to do so. The relief come on June 23, with IRS Notice 2020-51 (tinyurl.com/y8o2zxjp), allowing people to redeposit their RMDs through a rollover, as long as it was accomplished by Aug. 31, 2020. (If you took a 2020 RMD later in the year and want to redeposit it before year-end, check with your accountant.)

There have been other changes in RMD rules that will take effect in 2021. The Setting Every Community Up for Retirement Enhancement (SECURE) Act, which was signed into law Dec. 20, 2019, moved the age for starting RMDs from age 70 1/2 to age 72. (Read my column on the subject at tinyurl.com/yxb95bh3). If you were born in the last half of 1949 (after June 30), you will turn 72 in 2021 and qualify under the new RMD rule. If you were born in the first half of 1949, you fall under the old 70 1/2 rule.

I should mention that more changes might be coming. A bill was introduced by House Ways and Means Committee Chairman Richard E. Neal, D-Mass., and ranking member Kevin Brady, R-Texas, in October called the Securing a Strong Retirement Act of 2020 (tinyurl.com/yywwgy7v). Among the many proposed measures in the bill is one increasing the age for taking your first RMD to 75 years old.

From my perspective, that’s a good move, and in fact, I’d like to see RMDs suspended to age 90.

For now, expect RMDs to go back to “normal” in 2021, meaning no waivers. Keep in mind that the age 70 1/2 rule still applies to QCDs (qualified charitable distributions). I wrote on that subject in October; let me know if you would like a copy of that column.

On another note, last week’s column triggered a question about the new “above-the-line” $300 tax-deductible charitable contribution for 2020: Is the $300 doubled for married couples filing jointly? According to the IRS draft for the 2020 instructions for forms 1040 and 1040-SR (tinyurl.com/jlzynap), on Page 29 it states, “$300 is the most you can enter on your return even if your filing status is married filing jointly.” As of this writing, a finalized version of the instructions has not been posted. Check with your accountant for more information.

Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (readers@juliejason.com). Please visit www.juliejason.com.

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It’s December, and if you haven’t yet made your charitable contributions this year, now is the time, especially since 2020 contributions are subject to new, more favorable tax treatment.

According to the IRS, just about every taxpayer (close to nine in 10) does not itemize deductions -- they take the standard deduction instead. If that describes you, did you know that this year you can get a tax deduction for a charitable contribution, something that normally calls for a Schedule A?

A special provision of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted last spring, enables taxpayers to get a deduction even if they don’t itemize.

Specifically, in 2020 you can make a cash donation of up to $300 and deduct that amount on your 2020 tax return when you file your return in 2021.

“Under this new change, individual taxpayers can claim an ‘above-the-line’ deduction of up to $300 for cash donations made to charity during 2020,” according to the IRS. “This means the deduction lowers both adjusted gross income and taxable income -- translating into tax savings for those making donations to qualifying tax-exempt organizations.” You can find more information about the $300 deduction at tinyurl.com/y4zvpj5z.

As Edward T. Killen, the acting commissioner of the Tax Exempt and Government Entities division of the IRS, pointed out in the IRS executive column “A Closer Look”: “This could help taxpayers when they file their taxes in 2021 -- and help many organizations across the country as they try to help people coping with the coronavirus. Many charities are struggling this year, and donations for many are down.”

What’s a “cash” donation? A check, credit card or debit card payment to the charity. What is not cash? Things like securities, household items or other property.

What is considered a qualified charity? Check IRS Publication 526, “Charitable Contributions,” at tinyurl.com/y6bhnuna. You also can use the IRS Tax Exempt Organization Search (TEOS) tool at tinyurl.com/y84b96ja. Scroll down the page until you find the blue “button.”

In “A Closer Look,” Killen encouraged taxpayers to use the TEOS tool, saying: “All too often, we see fly-by-night organizations pop up trying to take advantage of natural disasters and people’s good will in the name of charity, when in reality they don’t have tax-exempt status. This can damage the reputation of noble charitable organizations and undermine confidence in charitable giving at the very time where generosity and help are most needed.”

What if you do plan to itemize? In 2020, again thanks to the CARES Act, you can deduct qualified charitable cash contributions on Schedule A as an itemized deduction up to 100 percent of adjusted gross income (AGI). Normally, the deduction is limited to a percentage (usually 60 percent) of the taxpayer’s AGI. If you are planning on using Schedule A, be sure to talk with your accountant first.

Finally, don’t forget qualified charitable distributions (QCDs), which I discussed in October. If you are 70 1/2 years old or older, you can withdraw up to $100,000 from your IRA (individual retirement account) to go to charity. Unlike IRA required minimum distributions (RMDs), which are suspended for 2020, QCDs are nontaxable IRA withdrawals. If you would like a copy of the October QCD column, please email me at readers@juliejason.com.

Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (readers@juliejason.com). Please visit www.juliejason.com.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION