What are the key takeaways to the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) from an estate planning perspective?
- Until December 31, 2020, taxpayers affected by the coronavirus pandemic (which the law defines) can take a distribution up to $100,000 from their retirement savings without being subject to the 10% penalty that normally applies to amounts withdrawn from such accounts before age 59½.
- The taxpayer can recontribute the distribution to an eligible retirement account within three years of the date of the distribution without regard to that year’s contribution limit.
- To the extent that distributions are not recontributed, the amounts received will be taxable income; however, the taxpayer may choose to treat such distributions as taxable income ratably over three years (instead of being taxable entirely in the year they are received). (We anticipate that the IRS will provide more details on how this new rule will be applied.)
- Individuals with outstanding eligible, qualified retirement account loans on or after March 27, 2020, can delay any repayment due in 2020 for one year.
- The maximum amount an individual may borrow from a qualified retirement plan for loans made during the 180-day period beginning on March 27, 2020 is increased to the lesser of $100,000 or 100% of the individual’s vested account balance.
Temporary Waiver of Required Minimum Distribution (RMD) Rules for Certain Retirement Plans and Accounts
- The CARES Act waives the required minimum distribution rules for certain retirement plans in calendar year 2020.
- This waiver applies both to 2019 RMDs that needed to be taken by April 1, 2020, as well as to 2020 RMDs.
Allowance of Partial Income Tax Deduction for Charitable Contributions
- To encourage charitable giving that is otherwise expected to decline during the coronavirus pandemic, the CARES Act permits a $300 charitable income tax deduction for cash gifts, even if the individual takes the standard deduction.
Temporary Suspension of Limitations on Certain Charitable Cash Contributions
- For individuals who do itemize income tax deductions, the CARES Act temporarily suspends the 50% AGI limitations for certain charitable contributions and allows deductions up to 100% of AGI. However, contributions must be made in cash and cannot be made to a donor-advised fund, certain supporting organizations, or certain private foundations.
- For corporate donors, the limit on charitable giving is increased to 25% of taxable income in 2020.