Coronavirus Stimulus Package: Impacts on Retirement Accounts and Charitable Giving
Which retirement account rules would be suspended?
For the calendar year 2020, no one would 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 could withdraw up to $100,000 this year without the usual 10 percent penalty, as long as it’s because of the outbreak.
You would 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 could 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 could take out twice the usual amount. For 180 days after the bill passes, with certification that you’ve been affected by the pandemic, you’d 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 would be suspended.
If you already have a loan and were supposed to finish repaying it before Dec. 31, you’d get an extra year.
I want to help people who are suffering from the pandemic. Does the bill do anything about charitable donations?
Yes. The bill would make 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 would 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.