The CARES Act ( the “Act”) waives the required minimum distribution rules for certain defined contribution plans and IRAs for calendar year 2020. This provision provides relief to individuals otherwise required to withdraw funds from such retirement accounts.
This also includes individuals who turned 70 1/2 in 2019 but elected to defer their initial distribution to April 1, 2020. If an individual has taken their RMD, they can redeposit it if sixty days have not elapsed since the date of the distribution.
Hardship IRA/401(k) Withdrawals
The Act will allow coronavirus related withdrawals from their 401(k) and IRA accounts up to $100,000 during 2020 and avoid the normal 10% penalty for those not of the required minimum age of 59.5.
Reasons for Coronavirus related withdrawals include
(1) An account owner diagnosed with COVID-19, or
(2) A spouse or dependent is diagnosed with COVID-19, oe
(3) An individual who experiences adverse financial consequences because of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to the coronavirus, or
(4) closing or reducing hours of a business owned or operated by the individual due to coronavirus, or
(5) or other factors as determined by the Treasury Secretary.
You are still required to pay income taxes but don’t have to pay the full amount in one year. You can spread that tax due over three years. Another option is to redeposit the withdrawn amounts back within three years.
Treatment of Charitable Deductions.
Generally, taxpayers must itemize their deductions to take advantage of charitable deductions. This itemized deduction requirement is eliminated for charitable deductions of up to $300 for most contributions for the 2020 tax year. Note that not all charitable deductions are eligible for this treatment. Specifically, charitable contributions made to a private foundation or donor-advised fund, are not eligible for the above-the-line charitable deduction.
In addition, the limitation that applies to the amount of a charitable deduction that can be claimed by individual taxpayers is based on a percentage of the individual taxpayer’s adjusted gross income is also eliminated for 2020.
Finally, a reminder – if you do not have a healthcare proxy in place, visit our website www.sjslawpc.com and fill in the contact form. We will send you a personalized healthcare proxy with directions. Print it out, insert a date, sign your name on the line indicated in front of two unrelated witnesses. Make sure that the document is readily available in an emergency. We can ONLY do this through the website.
If you have questions, please send them to firstname.lastname@example.org.
Stephen J. Silverberg, Esq.