CARES (Coronavirus Aid Relief and Economic Security) Act Passed
No Required Minimum Distributions
In pre-Coronavirus 2020, individuals who turned 72 were required to take mandatory distributions from their workplace retirement plans and their IRAs every year.
In prior years, this requirement kicked in after savers turned 70½ years of age.
This is known as one’s Required Minimum Distribution (RMD).
The CARES Act, signed into law on Friday, suspends those RMD payments for 2020, a move that will keep taxpayers from drawing down on savings at a time when the market is in flux over COVID-19 worries.
IRAs can still be used for monthly income, if that makes sense for you. Please do not hesitate to check in with your Advisor to see which option is best, based on your individual circumstances.
If you are still contributing to an IRA, you have until July 15, 2020 to make your contribution for 2019.
Special Uses for Retirement Funds
No one wants to pull funds from their retirement accounts before they planned, but Congress realizes there are emergencies where it may be necessary. Generally, aside from a few permanent exceptions, if you pull money out of a qualified retirement plan before age 59 ½ you’ll be hit with a 10% penalty on all withdrawals in addition to the income tax liability.
The CARES Act waives the 10% penalty for those negatively affected by the COVID-19 pandemic. In addition, the income tax liability from the withdrawals may be spread over a three year period. Taxpayers may also choose to avoid any income tax liability by recontributing the distribution taken within three years of receipt.
New “Above-the-Line” Deduction for Charitable Contributions up to $300 and Removal of Charitable Contribution Limitation
Typically, only those who itemize deductions, not claim the standard deduction, receive a benefit for charitable contributions. The CARES Act allows, for 2020 only, up to a $300 “above-the-line” deduction for cash donations to 501(c)(3) organizations – that’s a deduction everyone can take, regardless of whether they itemize or claim the standard deduction.
Additionally, for those who do itemize deductions, there is no limit to the charitable contributions you make in 2020. Typically, you can only offset up to 60% of your AGI with charitable contributions but that is temporarily waived.
Many Americans will be receiving checks, or direct deposits, from the federal government in the coming weeks. The CARES Act approved “recovery rebates” for taxpayers equal to $1,200 for single filers, $2,400 for married filers, and $500 for each eligible child.
Taxpayers begin to phase out at a rate of $5 for every $100 of adjusted gross income (AGI) over the threshold amounts in the bill. Thresholds provided are $75,000 for single filers, $150,00 for married filers, and $112,500 for head of household filers. AGI numbers will be pulled from 2019 tax returns if they’ve been filed, or 2018 if they have not.
The rebate checks/direct deposits are currently scheduled to go out in the next three weeks.
As we are reminded every day, we’re all in this together, and we will get through it together. Lean on us if you need help with anything right now – we’re here for you.