Coronavirus Impact On Your Retirement Accounts And Charitable Contributions
The financial strain of the global health crisis may have you looking at your retirement savings as a necessary lifeline. If that’s the case, changes have been put into place to help reduce the burden of making changes to or withdrawing money from your retirement accounts. If you are fortunate enough not to feel the direct economic strain of the Coronavirus Pandemic and are interested in increasing your charitable contributions to support relief organizations, favorable changes have been put in place regarding these situations. Learn more about how these may impact you below.
The following is an excerpt from the New York Times, “F.A.Q. on Stimulus Checks, Unemployment and the Coronavirus Plan.” You can find the full article here: https://www.nytimes.com/article/coronavirus-stimulus-package-questions-answers.html
“COVID-19
Retirement Accounts & Charitable Contributions
Which retirement account rules are suspended?
For the calendar year 2020, no one will have to take a required minimum distribution from any individual retirement accounts or workplace retirement savings plans, like a 401(k). That way, you aren’t forced to sell investments that may have fallen in value, which would lock in losses. If you don’t need the money now, you can let the investments sit and hope that they recover.
This change would not affect old-fashioned pensions.
What if I have to take money out of my I.R.A. or workplace retirement plan early?
You can withdraw up to $100,000 this year without the usual 10 percent penalty, as long as it’s because of the outbreak.
You will also be able to spread out any income taxes that you owe over three years from the date you took the distribution. And if you want, you could put the money back into the account before those three years are up, even though the rules may normally keep you from making a contribution that large.
This exception applies only to coronavirus-related withdrawals. You qualify if you tested positive, a spouse or dependent did or you experienced a variety of other negative economic consequences related to the pandemic. Employers can allow workers to self-certify that they are qualified to pull money from a workplace retirement account.
Can I still borrow from my 401(k) or other workplace retirement plan?
Yes, and you can take out twice the usual amount. For 180 days after the bill passes, with certification that you’ve been affected by the pandemic, you’ll be able to take out a loan of up to $100,000. Usually you can’t take out more than half your balance, but that rule is suspended.
If you already have a loan and were supposed to finish repaying it before Dec. 31, you get an extra year.
Charitable Contributions
I want to help people who are suffering from the pandemic. Does the bill do anything about charitable donations?
Yes. The bill makes a new deduction available — and not just for 2020 — for up to $300 in annual charitable contributions. It’s available only to people who don’t itemize their deductions, and you calculate this new one by subtracting the amount you give from your gross income.
To qualify, you have to give cash to a qualified charity and not to a donor-advised fund, which is a charitable account that affluent people often use to bunch contributions in a particular year in order to maximize deductions. If you’ve already given money since Jan. 1, that contribution counts toward the $300 cap.
I am lucky to have substantial wealth, and I want to give more to charity than I usually do. Have the limits on charitable deductions changed?
Yes, they have. As part of the bill, donors can deduct 100 percent of their gift against their 2020 adjusted gross income. If you have $1 million of income, you can give $1 million to a public charity and deduct the full amount in 2020.
The new deduction is only for cash gifts that go to a public charity. If you give cash to, say, your private foundation, the old deduction rules apply. And while the organizations that manage donor-advised funds are public charities, you do not get the higher deduction for donating cash to your donor-advised fund.
If your assets are substantial enough that you can give more than your income this year, you won’t lose the deduction for the excess amount. You can use it next year, as has always been the case.”