Summarizing Tax Law Changes related to the CARES Act

Greetings to parents, students, family, and friends of Bishop Carroll High School. These are very trying times and I hope this finds everyone healthy and safe. We are in the midst of a global pandemic and it has taken its toll on everyone in some form or another. Students, teachers, parents, clergy, grandparents, employees, and friends have all been impacted.

In an effort to combat the consequential financial strain of this pandemic on working families, the Americans the Coronavirus Aid Relief & Economic Security Act (CARES Act) was passed to aid everyone in this time of need. There is a lot of substance to these new tax law changes, which can be very confusing, but I will briefly summarize some of the pertinent points in an effort to provide clarity to the grandparents of students, friends, and or anyone affiliated with Bishop Carroll High School.

First, before the pandemic, the rule for taking or withdrawing the required minimum distributions “RMD” from individual retirement accounts (IRA) recently changed. In 2019, the

Retirement Enhancement Act (Secure Act) was signed into law for the purpose of helping Americans save for a more secure retirement. One of the benefits of this act was it gave more

leeway to taxpayers who were reaching the age where the distribution from their retirement accounts were applicable. Pre the Secure Act, taxpayers had to take their distribution each year beginning at age 70 ½ from their IRA accounts. However, this new act changed rule to age 72 for taxpayers who turned 70 in calendar year 2020. But unforeseen to no one, the pandemic spiraled out of control and the CARES Act was signed into law to relieve the unexpected associated financial stress. In essence, RMDs from IRA accounts have been completely waived for calendar year 2020 to resume accordingly in 2021. This means you will not have to withdraw any money from your IRA accounts in 2020. As most of us know, the problem at the time was that the majority of IRA accounts had substantially lost value. This law buys time for IRA accounts to recover their value which buys taxpayers more time before they have to withdraw more funds from the account. The suspension is also in effect for inherited beneficiary IRA accounts and the five year “Stretch IRA” RMDs suspended as well. So if you inherited an IRA account form a family member or friend, you don’t have to take any money out this year. We are in the month of May, so it is possible some taxpayers have already taken their RMD. Not to worry, under certain circumstances and if the requirements have been met these taxpayers can rollover or redeposit the previously withdrawn RMD.

Equally as important, the rules for qualified charitable distributions or “QCDs” has not changed. Taxpayers can still exclude the donated amount from their taxable income for tax year 2020 of up to $100k. As an example, if a retiree is making $50,000 per year from social security, a pension, investment income, etc., and takes a $5,000 RMD from a traditional IRA, their adjusted gross income would automatically be increased to $55,000. However, unfamiliar to many taxpayers, people who donate their distribution can completely exclude these funds from the donor’s adjusted gross income. This deduction applies to taxpayers who take both the standard and itemized deductions and can substantially help the donor and charity/not-for-profit organization. This can greatly help the taxpayer in their philanthropic planning efforts while at the same time benefit organizations in need. This QCD is not available for entity beneficiary IRAs (estate, charity or trusts).

Further, for business owners of all sizes, the Act provides significant relief to participants in corporate sponsored 401(k) and not-for-profit 403(b) plans. New guidelines applicable to participant loans, distributions, RMDs, and retirement related reporting deadlines have been implemented so the plan sponsors can take advantage of these procedures in an effort to help the participants. This can substantially benefit both the employee and the employer.

The best advice I can give is to speak with a qualified tax advisor in conjunction with your investment and or financial advisor. In regard to qualified retirement plans, plan sponsors should seek out the advice of a qualified retirement plan consultant and or third party administrator. We will pull through this hard time but there are tax and investment resources available for which you can use.

Chris Merlo, EA, AIF®

Managing Director Advisory & Brokerage Services, General Securities Sales Supervisor, RJFS

Accredited Investment Fiduciary

Enrolled Agent admitted to practice before the IRS

2589 Washington Road, Building 400 Suite 410 // Pittsburgh, PA 15241Ð 412.360.8573

Past performance is not indicative of future results.

Opinions expressed herein are not necessarily the opinions of Raymond James Financial Services and their associates.

While we are familiar with the tax provisions of the issues presented herein, as financial advisors of Raymond James, we are not qualified to render advice on tax or legal matters. RMD’s are generally subject to federal income tax and may be subject to state taxes. You should discuss tax or legal matters with the appropriate professional.

Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Securities offered through Raymond James Financial Services, Inc., member FINRA / SIPC.

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