The CARES Act Overview Part 2: Charitable Giving, Retirement Funds
This past Friday Congress passed the CARES Act which includes a number of individual, family and small business provisions. We are evaluating the legislation, so we can provide timely advice to our clients. The CARES Act includes over $350M of benefits to small business and self-employed individuals, as well as one-time recovery rebate payments to taxpayers, expanded unemployment, and more. The magnitude of the relief package requires careful study and quick action – there is no guarantee of how long the money will last.
New $300 Charitable Contribution.
To further incentivize charitable contributions, the CARES Act establishes a new above-the-line deduction (i.e. you don’t have to itemize) for cash contributions up to $300 made in 2020 to be put on next year’s filing. This is a permanent change. The limits on deductions for charitable contributions are also changing which especially impacts individuals who itemize deductions.
The 50% AGI limit on cash charitable contributions is suspended for 2020 (the corporate 10% limit has increased to 25%).
-The bill waives the 10% early withdrawal penalty for distributions up to $100,000 for coronavirus related purposes. This applies retroactively to distributions as early as January 1, 2020. Even though the penalty tax is waived, you will still need to pay income tax on the withdrawals, but it is spread over a three-year period.
-Funds may also be re-contributed within three years without regard to that year’s cap on contributions, but the details are still being worked out.
-The 401(k) loan limit has also increased from $50,000 to $100,000.
-Required Minimum Distributions (RMDs) are waived for 2020 (including on inherited IRAs). It may be prudent to increase Roth IRA conversions to use the lower bracket not being used by distributions.