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Tax season is here — and there are some new rules that Iowans need to know about

Dave Elizondo from True Financial Partners joins News 8's Jenna Webster to discuss new tax filing rules with tax season officially underway.

MOLINE, Ill — Monday was the first day of the tax filing season, and there are some rules that you should be aware of, especially if you live in Iowa. 

Certified Financial Planner Dave Elizondo from True Financial Partners joined News 8's Jenna Webster to give insight into how to sort through these tax twists. 

Webster: How does the new tax code change directly impact retirees?

Elizondo: There's a rule for this that affects anybody who has a retirement plan, like an IRA or a 401(k) retirement plan. There's a rule called the required minimum distribution rule that requires that once you reach a certain age, you're required to start taking out an annual withdrawal from your account, whether you want to or not. 

Now, since 1974 when IRAs came out, the age was 70 and a half. So once you reach the age of 70 and a half, you have to start taking out a certain minimum. Well, in 2019, that age was increased to 72. And then beginning this year, it was increased to age 73. So the good news is, if you're under the age of 73, you don't have to take money out of your retirement accounts unless you want to.

Webster: Is there a penalty for failing to follow this rule?

Elizondo: Yes, there is. And that's a great question. And something that very few people are familiar with. There's a penalty, if you don't take out your required minimum distribution in any given year, the penalty is 50%. So let's put that into perspective. Let's say that you have to withdraw $10,000 as your required minimum withdrawal. And if you don't take that withdrawal by Dec. 31 of that year, the penalty is 50%, or $5,000 in this case. That's a very high penalty. 

And then on top of that, you still have to take your required minimum distribution, and pay the taxes on that. So between the taxes and the penalty, it's pretty painful. Now the good news is starting first Jan. 1 of this year, that rule has been relaxed from 50% down to 25%. And in addition, if you don't make a withdrawal when you're supposed to in a given year, and you catch it early, if you catch it in a reasonable amount of time, and if you have what's considered a reasonable excuse or reason why you didn't, the IRS might relax your penalty from 25%, or even down from 25%, down to 10%. Or they might even forgive it all together. So if you find out that you didn't make a withdrawal and you were supposed to, get it taken care of as soon as you can, and maybe there will be no penalty.

Webster: What do the new laws mean for retirees in Iowa?

Elizondo: Sure. Well, on Jan. 1 of this year, Gov. Reynolds passed a bill that said, if you're a resident of the state of Iowa, and if you have a retirement account, like an IRA, a 401(k) or a pension, those withdrawals or pension payments are no longer going to be taxed for residents in the state of Iowa. So this is big. You'll still pay federal tax on your withdrawals, but no longer will you pay state tax. So that's a big, that's a big change for people in the state of Iowa, because we've seen a lot of people retire and move to other states, there's a small handful of other states that don't charge a state tax. So now by eliminating this state tax for Iowa residents, hopefully, people are going to retire and stay in Iowa. And since there are so few states that don't charge a state tax, it might even encourage some folks to retire in other states and move to Iowa once they retire.

Webster: How will this change the plan of somebody who's approaching retirement and making decisions about staying or leaving the state of Iowa?

Elizondo: It's all about the taxes as I mentioned before. You pay federal tax on your withdrawals from your IRAs and 401(k)'s or if you have pension payments, but now if you don't have to pay state tax that's very attractive. So hopefully that's gonna again, like I said, that's gonna encourage people to stay in the state of Iowa once they retire.

You can learn more about Dave and the work at True Financial Partners by visiting their website. Alternatively, they can be reached by calling them at 877-359-8783. 

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