TRUST & ESTATE PLANNING

Massive Relief Package Changes Retirement, Charitable Giving Rules

03.27.2020 - Bryan Kirk

On March 27, 2020, the President signed into law the Coronavirus, Aid, Relief and Economic Security Act (CARES Act) providing a $2 trillion relief package for the US economy. The most significant provisions for individual investors and taxpayers include:

1. Rebates for Individuals and Couples

All individuals with incomes of $75,000 or less will receive a $1,200 tax rebate check and married couples with income of $150,000 or less will receive $2,400. In addition, individuals and couples are eligible for an additional tax credit of $500 per qualified child. No action is necessary to receive the rebate, which will be based on your 2019 tax return. If you haven't filed your 2019 return yet, your rebate will be based on your 2018 tax return.

2. Required Minimum Distributions (RMDs) Suspended for 2020

The CARES Act suspends the required minimum distribution rules for certain retirement plans, including 401(k) accounts, 403(b) accounts and IRAs, for calendar year 2020.

If you have RMDs that you have not yet taken this year, you may want to forgo them to allow your account values to recover rather than be depleted through withdrawal while the market is down. Given that 2020 RMDs are based on 12/31/19 values, which in some cases were close to record highs, forgoing your RMD this year can be a good way to preserve your assets for the long-term. For any RMD amounts you have not yet taken for 2020, please notify us if you wish to stop any pre-directed withdrawals.

3. Charitable Contribution Limit Raised to 100% of 2020 AGI

In 2020, individuals can claim a tax deduction for charitable contributions of cash up to 100% of their adjusted gross incomes (AGI)—an increase from the normal limit of 60% of AGI.

  • This higher limit does not apply to cash gifts to Donor Advised Funds or private foundations because the incentive is to get cash to charities immediately.
  • Any amount over the 100% AGI limit can be carried over for the next five years.
  • Cash contributions of up to $300 to churches and charitable organizations can also be deducted whether you itemize or not.

This provision offers a significant incentive to donate cash to charities at a time when many in our communities are in great need. It can also result in significant tax savings, especially if you are anticipating a higher-than-normal tax bill for the 2020 tax year, whether from the sale of assets or another one-time tax event like a ROTH conversion.

4. No Penalty for Coronavirus-Related Early Withdrawals 

Under the CARES Act, individuals under age 59 ½ who are impacted by the coronavirus can withdraw up to $100,000 from their retirement accounts without paying the 10% early withdrawal penalty. Eligible individuals include those diagnosed with COVID-19, those with spouses or dependents diagnosed with COVID-19 and those who have experienced adverse financial consequences, whether from quarantine, job loss, furlough, reduced working hours or other factors.

  • The tax burden on those withdrawals can be spread out over three years and funds can be recontributed to a qualified retirement plan within a three-year period without counting toward contribution limits.
  • The limit on loans from a qualified retirement account also increased from $50,000 to $100,000 for these individuals.
5. Student Loan Relief

The CARES Act allows employers to contribute up to $5,250 annually to help employees pay off their student loans. Those contributions will not be considered income for tax purposes.

 

Federal Tax Filing and Payment Deadlines Extended to July 15

In addition to the CARES Act, last week the Treasury Department announced the income tax filing and tax payment deadlines were extended from April 15 to July 15.  The new deadline applies to certain federal income tax filings and payments (including first quarter estimated tax payments) for individuals, trusts, estates, and corporations.  No application needs to be filed, and taxpayers can still file for a further extension to the Fall.  While many states have followed or lead the federal example (including California, Connecticut, and D.C.), other states have yet to make a change.

The Treasury also just announced that federal gift tax filings and payments due on April 15 are extended to July 15 as well.   

 

Want to Know More?

For more information about the CARES Act, tax updates and what it means for your financial life, please contact your Fiduciary Trust representative or call us at (877) 384-1111.




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Bryan Kirk

Craig Richards, CPA/PFS, CFP