The 5 Most Important Changes For Retirees From Coronavirus-Related Laws And Executive Orders

You’ve probably heard by now that last week President Trump signed into law The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020, a $2 trillion stimulus package intended to stave off some of the economic impact of the COVID-19 pandemic. There are a large number of provisions in the bill, including some to support small businesses and large companies in certain sectors that have been among the hardest hit.

This article only addresses one part of the CARES Act (and other recent stimulus): what it means for American retirees aged 72 and older. Here are the five most important changes from the CARES Act and other recent Federal action.

1. 2020 Cash Recovery Rebates For Individuals

What Is the Provision? A check of $1,200 ($2,400 if married and potentially more for those with dependent children) will be direct-deposited or mailed to every non-dependent with a Social Security Number making less than a certain income threshold, even if they did not have taxable income in their most recently filed tax returns. Generally, Americans will not have to take any action to receive a rebate check. However, there are fears that those who have not set up direct deposit with the IRS may not receive their check for several months.

Who Qualifies? The recovery rebate is available to those with no income, and those with income that is derived from non-taxable means-tested benefit programs, like Social Security. Each U.S. resident (with a valid identification number) who had up to $75,000 in adjusted gross income (AGI) in 2018 or 2019 (the most recent year you filed taxes) will receive a one time payment of $1,200, while married couples with AGI up to $150,000 will get $2,400. Additionally, taxpayers will receive an additional $500 for each child under age 17. Individuals and families with income above their respective thresholds will see their relief payments reduced by $50 for every $1,000 in AGI. That means that married couples with income over $198,000 and individuals with income over $99,000 will not qualify.

2. No Required Minimum Distributions In 2020

What Is the Provision? The requirement to withdraw Required Minimum Distributions (RMDs) from pre-tax retirement accounts has been waived for calendar year 2020. The waiver applies even to those who have already taken their expected RMD in the first quarter of the year, either through a rollover within 60 days of the distribution, or if more than 60 days ago, through a hardship waiver. In cases where someone who turned 70½ in 2019 but did not take their RMD, they are now not required to take either their 2019 or 2020 RMDs. 

Who Qualifies? Anyone who otherwise would have been subject to Required Minimum Distributions. In general, that means any American who was 72 as of the beginning of the year with funds in a tax-deferred account, like a 401(k) or IRA, is not required to withdraw a certain percentage of those funds and subject that withdrawal to taxation. The RMD rules are particularly complicated because the SECURE Act (enacted in December 2019) increased the age when RMDs must begin from 70½ to 72, so it likely makes sense to contact a tax advisor about your particular situation.

3. More Flexible Retirement Account Loan Provisions

What Is the Provision? The maximum loan amount from a retirement account for impacted individuals like a 401(k) is now $100,000, up from $50,000 prior to the CARES Act. All loans that otherwise would have been due in 2020 are now extended by a year. Additionally, prior to the CARES Act, once an individual had a vested plan balance that exceeded $20,000, they were only eligible to take a loan of up to 50% of that amount (up to the normal maximum of $50,000). The CARES Act amends this rule for affected individuals, allowing them to take a loan equal to their vested plan balance, dollar-for-dollar, up to the $100,000 maximum amount.

Who Qualifies? Any impacted individual who has a loan from a retirement plan or would like to take a loan from their plan. The availability and terms of a 401(k) loan will vary from plan to plan, so it probably makes sense to contact your employer or plan administrator for more information. Additionally, keep in mind that just because you CAN doesn’t necessarily mean that you SHOULD take a loan from your 401(k).

4. IRS Extension for 2019 Taxes

What Is the Provision? The deadline both to file and pay federal income taxes has been extended 3 months from April 15, 2020 to July 15, 2020. This also means that you have three additional months to make your 2019 IRA contributions (assuming you haven’t already contributed the maximum allowable amount). 

Who Qualifies? All tax filers. 

5. Additional Incentives for Charitable Giving

What Is the Provision?  The CARES Act allows for an “above-the-line” deduction of up to $300 for cash charitable contributions, whether an individual itemizes their deductions or claims the standard deduction. This provision also increases the limitation on charitable contribution deductions by individuals who itemize deductions.

Who Qualifies? All taxpayers. 

Disclaimer: This article does not constitute legal, financial, medical, or tax advice.

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