President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law to help Americans combat the economic effects of the coronavirus. It includes potential tax breaks, checks for qualifying Americans, and temporary new rules for retirement account withdrawals. Here’s a guide to the CARES Act for Americans 50 and over.
Delayed Tax Filing Deadline
- For what is perhaps the first time in your life, tax day was not be on April 15th. The federal tax filing deadline has been pushed back to July 15th for all American taxpayers.
- Unlike an extension, you didn’t have to apply for it. It was automatic, and taxpayers can delay payment until July 15th. The deadline for making IRA contributions is also now July 15th.
- If you usually file for an extension, keep in mind that tax returns with automatic filing extensions are still due by October 15th.
Suspended 2020 RMDs
- Required Minimum Distributions (RMDs) are suspended for the 2020 calendar year. If you have already taken your 2020 RMD from your account, you have 60 days to undo it. This means writing a check and depositing it back into the same amount.
- You are also not required to take an RMD from an inherited retirement account. However, if you’ve already taken a distribution, there is no way to put the money back in.
- If you don’t need the income from an RMD, you can take advantage of this opportunity. By keeping your income for 2020 low, you can reduce your tax burden or possibly make a Roth IRA conversion. This is one of many ways a financial advisor can help you with tax strategies.
New Rules for Retirement Account Withdrawals
- While taking money out of your retirement account before ago 59 ½ is normally not advised, some people may wish to at this time. You can withdraw up to $100,000 from retirement account(s) and pay the tax over three years.
- In most cases, those under age 59 ½ would incur a 10% early-distribution penalty. That penalty has been waived for up to $100,000.
- Normally, there is a cap on how much someone can donate to charity tax-free, which is 60% of a taxpayer’s AGI. The CARES Act raises this limit to 100% of AGI for 2020. There is also a provision that allows taxpayers who don’t itemize to deduct up to $300 in charitable donations.
There is a lot for Americans 50 and over to weigh before making a decision at this time. If you’re unsure of what to do, or how to maximize the benefit of the CARES Act, contact us. We can look at your unique financial situation, and help you create a comprehensive retirement plan with recent threats and opportunities in mind.