Broker Check


December 10, 2020

Hey everyone, today we are going to talk about the Coronavirus Aid Relief and Economic Security act better known as the CARES act which was passed by congress and signed by Donald Trump on March 27th, 2020. This act provided 2.2 trillion dollars in stimulus to help the economy during the onset of the pandemic and has some meaningful implications that could affect your retirement income.

For starters, the new law waives the 10% penalty tax for early withdrawals from a retirement account of up to $100,000 if made on or after January 1, 2020. In this scenario, taxable income can be spread out over three years and repaid within three years of the date of distribution if the individual is impacted negatively financially by COVID-19.

In addition to early withdrawals, Required Minimum Distributions from defined contribution plans and IRAs for 2020 are suspended. This helps individuals avoid selling investments while the market is down. If you have done an RMD within the past 60 days, you could use the once a year 60-day IRA rollover to get the money back into a deferred account without tax implications. If you can suspend your withdrawals for one year, it can help your portfolio out in times of high volatility.

The CARES act also provided a charitable giving enhancement. Even if you do not itemize your taxes, there is now a $300 above the line deduction of cash contributions to churches and other charitable organizations for 2020. Additionally, individuals will have no Adjusted Gross Income (AGI) limit on charitable contributions for 2020. For example, if you have $100,000 of AGI, you could give in cash up to $100,000 and deduct it this year. This is essentially wiping out your AGI. This is not a super common strategy but for those who sold a business or had another large taxable event occur in 2020, a large charitable gift could make sense.

So besides the stimulus checks to individuals and loans to businesses, the CARES act has provided some potentially meaningful opportunities to take advantage of in retirement planning. To learn more about the CARES act and determine if it could enhance your retirement planning, please call our office at 321-868-0732.