The CARES (Coronavirus Aid, Relief, and Economic Security) and the SECURE (Setting Every Community Up for Retirement Enhancement) Acts both became effective in 2020. Highlighted below are some of the charitable opportunities presented by the new laws.

Ability to reduce taxable income by $300. Those who plan to take the standard deduction on their 2020 tax returns may still get a benefit from making cash gifts to charitable organizations like Bentley this year. The CARES Act allows all donors to reduce their taxable income by up to $300 with an “above-the-line” reduction to their income.

Higher ceiling for certain charitable income tax deductions. The CARES Act allows donors who itemize to deduct the value of 2020 cash charitable gifts up to 100% of adjusted gross income (AGI). The charitable deduction limitation for cash gifts would normally be 60% of AGI, but this special provision allows especially generous donors to reduce their income tax liability significantly in 2020, potentially even to zero. Donors age 59½ and older may also wish to consider using withdrawals from their retirement plans to fund 2020 charitable gifts or pledges, especially if they reside in a state without state income tax, as they may be able to offset all or most of the withdrawal through this special 2020 provision.

New rules for retirement plan contributions and distributions. The SECURE Act enhanced certain retirement plan provisions related to contributions and required minimum distributions (RMDs). For contributions, a retirement plan owner may now continue contributing to a traditional IRA beyond the age of 70½, resulting in an opportunity to bolster tax-deferred retirement savings. For distributions, the age at which a retirement plan owner must start to take RMDs has been delayed from 70½ to 72, with limited exception. This provides an opportunity for retirement plan assets to grow tax-free for a longer period of time. Please note that the subsequently-passed CARES Act eliminated the need for most RMDs in 2020, providing the option to leave these funds in retirement accounts this year.

Regardless of these changes, IRA Qualified Charitable Distributions (QCDs), informally known as IRA rollover gifts, remain a very popular way to make current charitable gifts for those who are age 70½ or older. Those who no longer can itemize a charitable income tax deduction may particularly value the tax benefits offered by IRA QCD gifts. Please contact us for additional information on how to maximize charitable giving with your IRA or other retirement plan.

New limitation for certain retirement plan beneficiaries. If a retirement plan names beneficiaries who are not the planholder’s spouse, under the SECURE Act the plan must now be fully distributed to those beneficiaries within 10 years. Previously, non-spousal beneficiaries could stretch the distributions over their lifetime. In either case, the distributions remain taxable.

However, income can continue to be stretched to non-spousal beneficiaries beyond the current 10-year limit by directing the retirement plan to distribute assets to a charitable remainder trust after the planholder’s passing. The trust can extend for the beneficiary’s lifetime or for a term of up to 20 years, and provide fixed or variable income to them. After their passing, or the end of the trust term, any amount remaining would be used to support a charitable organization such as Bentley.

Learn more about the CARES Act and about the SECURE Act