This year has brought all kinds of changes. In March, the government passed the CARES Act to help the stimulate the economy and help infuse money. Most people received their COVID checks and hear about PPP Loans, however, there are less know benefits like a “RMD holiday”, updated charitable deductions, and exemptions for COVID related withdrawals.
The first little knows aspect of the CARES Act is the 2020 RMD postponement. In the past, for anyone over the age of 70 ½ you were mandated to take a required minimum distribution (RMD). The age has been increased from 70 ½ to 72 as of Jan 1, 2020. This postponement means that it provides an option for people normally required to take a distribution the option to not take it. Of course, if you need the money you can still access it.
If you choose to postpone this year’s RMD it could be a huge investment planning tool.
Example: IRA account is worth $1,000,000 on 12/31/2019. (Without the RMD postponement)
RMD $40,485 distribution of 4.05%
Lets assume your portfolio is $750,000 now (due to market dropping of 25%)
The same RMD $40,485 is now a rate of 5.4%
Although you may not think that 1.35% is a big amount, if your account balance at Dec. 31, 2019 would have been $750,000 you would have only needed to distribute $30,363 (a difference of only 10k). This is where the postponement comes in. Another consideration is a donation directly to a charitable organization like the USTA/Midwest Tennis & Education Foundation. It does not count towards your adjusted gross income which also may allow you to qualify for lower medicare premiums.
If you have already taken your RMD you may be permitted to redeposit some or all of your funds. You will need to contact your administrator directly.
Other aspect to the CARES Act were changes to the 2020 charitable contributions and tax laws. You can now directly deduct up to $300 in cash for 2020 without having to itemize deductions. This does not include gifts to donor advised funds. Other changes include the Above-the Line-Deduction for gifts of cash from 60% to 100% of your AGI and anything above is carried forward for five years.
Finally, for those who are in need there are exemptions for early withdrawals due to COVID-19 related issues. Participants can take money from their IRA or qualified plan with no penalties to a max of $100,000 and are permitted to recontribute the amount over a 3- year period as a rollover.
If you wish to speak with a representative from the Foundation to discuss further, please email Elizabeth Dickison at Elizabeth@midwest.usta.com. Of course, be sure to confer with your advisor on specific tax advice for your circumstance. This information is to stimulate alternative donation ideas in preparation of tax time and not to be construed as tax advice.