If you’ve been able to remain in a comfortable financial position amidst the COVID-19 pandemic, you may be wondering if and how the newly passed CARES Act legislation may impact you. Financial advisor J. Peter Doyle reviews some strategies.

The COVID-19 pandemic and the resulting CARES Act legislation have changed life as we know it for the time being. Savant is vigilant about distributing as much relevant content as possible to our clients and the public at large, providing guidance in these troubling times. Much of this guidance has been directed at individuals and business owners who are in dire straits, and rightly so. But we know that this is not the case for everyone. The majority of our clients have stuck to their plan and remain in a comfortable financial position, either heading into or remaining in retirement. Therefore, let’s take a look at some of the options these individuals currently have.

One of the major provisions of recent legislation benefiting individuals who have more than enough cash flow from sources other than retirement accounts is that RMDs have been eliminated for 2020. This applies to account owners who are currently taking distributions, beneficiaries of inherited accounts, and individuals who turned 70 ½ in 2019 and pushed their initial distribution to 2020. But what happens if you already took your 2020 RMD? There are two potential options for you. One, if you took your distribution within the last 60 days, you may be able to redeposit it as a once-per-year non-trustee-to-trustee rollover (as long as you haven’t done this in the last 365 days). Two, if you took your distribution more than 60 days ago and you are able to meet the current definition of impacted by the coronavirus, you may be able to treat that distribution as a “Coronavirus Related Distribution,” even if that was not your intent when you took it out. This would give you three years to repay that distribution.

Impacted by the coronavirus is defined as:

  • Have been diagnosed with COVID-19
  • Have a spouse or dependent who has been diagnosed with COVID-19
  • Experience adverse financial consequences as a result of being quarantined, furloughed, laid off, or having work hours reduced because of the disease
  • Are unable to work because you lack childcare as a result of the disease
  • Own a business that has closed or operated under reduced hours because of the disease
  • Other factors as determined by the Treasury Secretary

It is important to note that both of these strategies only work for account holders, as beneficiaries of inherited IRAs are not eligible to make a rollover.

For those of you who are charitably inclined, the CARES Act also made two adjustments expanding the deductibility of charitable gifts. A new above-the-line charitable deduction has been created for taxpayers who are not itemizing their deductions called a Qualified Charitable Contribution. This deduction can be for up to $300 and appears to be a permanent change going forward. It is small but better than nothing. If you think you may want to make a more serious charitable gift this year, the AGI limit for 2020 has been lifted from 60% to 100%, with charitable contributions over 100% of AGI being carried over for the next five tax years. There are two additional requirements that need to be met to qualify for both of these new adjustments: the contributions need to be made in cash and they cannot go to a Donor Advised Fund or a Private Foundation.

Finally, individuals may want to take advantage of depressed asset levels to either make Roth conversions or shift assets out of their estate. These depressed values allow you to essentially shift a greater number of assets for the same dollar cost. If you have a federal or state estate tax problem, you can now possibly gift 100 shares of “X” out of your estate for a dollar cost of what would have previously been only 75 shares. This also keeps all of the future growth of those additional 25 shares outside of your taxable estate. The same idea works for Roth conversions. You can now possibly get 100 shares out of a traditional IRA and into a Roth for a tax cost that two months ago would have only converted 75 shares. This gets you more tax-free growth for a lower tax cost now.

These are just a few of the strategies we are currently discussing with our clients. As always, we are grateful for the continued trust you have placed in us. Should you have any questions or concerns, feel free to reach out to your advisor. Together, we will all get through this.

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