The CARES Act and Caring for Others in a Time of Crisis
To provide much-needed relief from the eﬀects of the COVID-19 pandemic, the President signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. While the Act primarily provides economic stimulus for businesses, there are several temporary measures that impact planning and giving.
Easing the Financial Burden
Several measures in the CARES Act are designed to help ease the ﬁnancial burden on individuals.
Required minimum distributions suspended
The required minimum distribution (RMD) rules are waived for 2020 for certain deﬁned contribution plans and IRAs—both for 2020 RMDs and for 2019 RMDs that needed to be taken by April 1, 2020. Those who already took their RMD early in 2020 may be able to return that withdrawal to the IRA or other qualiﬁed retirement plan from which it was taken.
IRA contribution deadline extended
The deadline for making an IRA contribution that counts for 2019 (usually April 15) has been extended to July 15, 2020, to match the extended tax ﬁling deadline.
Penalty on early retirement distributions removed
An individual who needs to take a distribution from a qualiﬁed retirement account for speciﬁed reasons related to COVID-19 may do so without paying the 10% early withdrawal penalty. This applies to distributions up to $100,000 made at any time during 2020. This distribution is taxable over three years and may also be paid back within three years without regard to the cap on contributions.
In addition, for distributions or loans related to COVID-19:
• The 20% mandatory income tax withholding on rollover distributions is waived for 2020.
• The maximum loan amount is doubled for loans between March 27 and December 31, 2020, with the loan due date extended for one year.
Recovery payments for individuals are being processed
For many U.S. taxpayers, the Federal government will make direct payment up to $1,200 each for individual taxpayers and $2,400 for married-ﬁling-jointly taxpayers, with additional payments of $500 per child under age 17. Taxpayers will see reductions as adjusted gross income (AGI) climbs above $75,000 (individual) or $150,000 (married ﬁling jointly), with the rebate dropping to zero once AGI exceeds $99,000 (individual) or $198,000 (married ﬁling jointly).
Encouraging Charitable Support
Two speciﬁc measures in the CARES Act are designed to encourage giving in this time of crisis.
AGI limit for gifts increased
For 2020, the individual limitation of 60% of AGI is raised to 100% of AGI for cash gifts to public charities (not to donor-advised funds). Corporations also have higher limits for 2020 cash gifts—25%, up from the usual 10% of AGI.
Above-the-line deduction allowed
To encourage charitable giving this year, the CARES act grants an individual who does not itemize a $300 above-the-line income tax deduction for gifts to charitable organizations in 2020. Of course, donors who wish to itemize may still do so.
Examining Other Giving Options
While cash gifts receive added beneﬁts under the CARES Act, there are other ways to give that may be a better ﬁt for your planning.
Individuals with established donor-advised funds may be in a better position to give, as the money has already been set aside and donations through the DAF will not aﬀect personal ﬁnancial security.
Qualiﬁed charitable distributions
IRA owners over age 70½ can give up to $100,000 (annual aggregate amount) directly from their IRA to charity. Although the gift does not qualify for a deduction, there is no tax on the distribution. For some donors, this option may still be a good ﬁt even though RMDs from an IRA are not required in 2020.
Donors who wish to secure a reliable stream of income during this uncertain market may ﬁnd value in charitable gift annuities.
Of course, another way to give without impacting current ﬁnancial resources is to make a revocable gift, such as a gift in a will or a charitable beneﬁciary designation on a life insurance policy or retirement account.