How the New CARES Act May Affect Your Gift Planning
The CARES Act aims to help the economy recover from the effects of the coronavirus pandemic. The Act provides financial relief for businesses, individuals, and institutions hit hard by the global public health crisis. It includes numerous provisions that could benefit you financially, and we encourage you to consult your financial, tax, or estate-planning advisors.
New Charitable Deduction Available for Non-Itemizers
Under the CARES Act, taxpayers who do not itemize their deductions will be able to claim a charitable deduction of up to $300 for cash donations made in 2020. This means you could make an additional $300 gift to Collegiate and recover a portion of it in tax savings.
Waiver of Retirement-Plan Penalties for Purposes Related to the Coronavirus
If you are under the age of 59½ and withdraw money from your retirement plan to cover expenses incurred by you or a family member related to treatment of the coronavirus, the 10% tax penalty will not apply, taxation of the distribution can be spread over three years, and you can add the amount you withdraw to the fund later without regard to contribution limits.
Charitable Deduction Limits Modified for Individuals
If you made a large cash gift in 2019, your charitable deduction was limited to 60% of your adjusted gross income. This year, the CARES Act increases the deduction limit to 100% of your adjusted gross income.
Required Minimum Distributions Waived
If you have a tax-deferred retirement plan, such as an IRA or 401(k), the CARES Act has waived your 2020 Required Minimum Distribution. With the recent stock market fluctuations, many people have seen a decline in their portfolio balances. The Act provides an opportunity for account balances to recover before making further mandatory withdrawals.
While the requirement to take a distribution is waived, the ability to make a tax-free charitable contribution is still in effect.
Donors can still make a Qualified Charitable Distribution up to $100,000 directly from their IRA. This transaction is not reported as taxable income nor is it claimed as a charitable contribution deduction.
How the SECURE Act May Affect Your Gift Planning
The SECURE Act, enacted in December 2019, provides greater access to tax-advantaged retirement plans and helps prevent people from outliving their assets. Here are three provisions of the Act that have implications for charitable planning.
Age requirement for taking distributions from a retirement plan raised to 72
Investing retirement funds for a longer time results in larger accumulations. The age at which the IRS Required Minimum Distribution begins was raised to 72 for persons who had not reached the age of 70½ by 2019. The age requirement for making a tax-free qualified charitable distribution remains 70½.
Contributions allowed to regular IRA after the age of 70½
This allows people who are still working to accumulate more for retirement. The additional contributions will impact one's required minimum distribution starting at the age of 72, but the qualified charitable distribution may make this a tax-wise option for long-term philanthropic planning.
Rules changed for inherited retirement accounts
With certain exceptions, individuals who inherit a retirement account from someone other than a spouse can no longer "stretch" the distributions to limit the income tax liability. If you are considering leaving a significant retirement account to a loved one, please consult with your financial, tax, or estate-planning advisor.