Financial Planning Provisions in the CARES Act: What Individuals Should Consider
Within the nearly 900 pages of the CARES Act are a number of favorable provisions for individual taxpayers that are only available in 2020, including:
Tax-favored retirement plan withdrawals: Individuals under the age of 59 ½ can withdraw up to $100,000 from retirement funds during 2020 for coronavirus costs without triggering the usual 10% early withdrawal penalty. There will be income tax on any coronavirus-related withdrawals, but it can be spread over three years starting in 2020. If you repay the withdrawal to the account within three years, you can avoid the income tax.
Loans from qualified plans: Eligible individuals may take loans up to $100,000 from employer-sponsored plans. This is a 50 percent increase from the previous limit of $50,000.
Temporary waiver of RMD rules: Required minimum distributions (RMD) rules are waived under the CARES Act for 2020 for defined contribution plans including 401(k), 401(a), 403(a), 403(b), Governmental 457(b), SEP IRA, SIMPLE IRA and Traditional IRA. This applies both to account owners and beneficiaries. This does not apply to defined benefit plans.
Changes to charitable contribution limits: The 60 percent adjusted gross income limitation on the deductibility of qualified cash contributions to publicly supported charities has been suspended for 2020. Qualified contributions do not include contributions to donor advised funds, supporting organizations and private foundations that are subject to the 30 percent limitation. The limitation rules still apply to non-cash gifts.
These provisions present both opportunity and peril if they are not carefully executed. Click here to read the full post where we dive deeper into the provisions, offer planning notes and flag key considerations before implementing. As always, contact your RKL Wealth Management advisor team with any questions or to discuss further.