CARES Act Impact on Personal Finances
The COVID 19 inspired CARES act includes several provisions that impact the tax deductibility of donating to non-profits and waives the required minimum distribution (RMDs) from individual retirement accounts for the tax year 2020.
The CARES Act recently signed into law amends section 62 of the Internal Revenue Code of 1986 by allowing taxpayers that do not itemize their deductions to take a limited above-the-line deduction for charitable contributions. Traditionally, the charitable contribution deduction is a below-the-line deduction available only to taxpayers who itemize.
For individuals, the Act modifies the limitation from a maximum of 60% to 100% of adjusted gross income. If an individual’s contributions exceed the 100% limitation, the excess contributions may be carried over for the next five tax years
One of the significant provisions of the CARES Act, is the waiver of any required minimum distributions (RMDs) from individual account retirement plans and IRAs for tax year 2020.
Individual account retirement plans include 401(k), profit sharing, 403(b) and state-sponsored 457(b) plans.
The CARES Act waiver means that individuals who have attained age 70½ in 2019 or before, or who have attained age 72 in 2020, are not required to withdraw their RMDs from retirement plans or IRAs in 2020.
The law temporarily loosens the rules on hardship distributions from retirement accounts, giving people affected by the crisis access of up to $100,000 of their retirement savings without the usual 10% penalty. The distribution is subject to income tax.
The law also doubles the amount 401(k) participants can take in loans from an account for the next six months to the lower of $100,000 or 100% of the account balance. IRAs don’t permit loans. However, the CARES Act eliminates the penalty, making the amount subject only to income tax. By skipping one year, it helps retirees recuperate investment as well as minimize the tax impact.
For more information visit irs.gov/coronavirus
This information is intended to be educational in nature only. Always check with a legal or tax professional prior to making any financial decisions.