New tax developments for seniors

Perhaps the most impactful is a provision in the CARES Act which waives the requirement for a minimum distribution (RMD) from certain retirement plans and IRAs for 2020. As most are aware, the tax law requires qualified plan participants and IRA account owners to annually receive a minimum amount (determined by tables established by the IRS) from their plans or accounts. These distributions are taxable and there are severe penalties for failure to take these distributions. 
    

The new law waives this requirement for 2020, but only for “defined contribution” plans such as 401(k)s and for IRAs; it does not apply to “defined benefit” plans such as a traditional pension. 
    

This means that for 2020, distributions of any amount may be taken; you could always take more than the RMD, and now for 2020, you can take less or even none. 
    

The default choice should be to take only what’s needed. Note, the waiver applies to RMDs that were payable by April 1, 2020, as a result of reaching age 70½  in 2019. If you received a 2020 distribution after Jan. 31, 2020, you may have until July 15 to undo it by making a rollover contribution. So far, there is no relief for those who received distributions in January 2020, but there is still time for IRS to consider this before 2020 returns are filed.
    

A new law enacted in 2019 also affects RMDs. Before this change, the first RMD had to be taken by April 1 of the year following the year the participant or account owner reached age 70½. An election could be made to take the first RMD by Dec. 31 of the year that age 70 ½ was reached, in order to avoid two distributions in the following year. The new law now provides that for all participants and IRA owners who have not reached age 70 ½ by Dec. 31, 2019, the first RMD need not be taken until April 1 of the year following the year in which age 72 is reached. 
    

The CARES Act made some changes in the area of charitable contributions. First, a new, above-the-line deduction for up to $300 of cash contributions will be allowed in 2020. This means the deduction can be taken in addition to the standard deduction. Contributions to Donor Advised Funds are not eligible for this universal charitable deduction. Second, the annual limit on deductible contributions has been increased for 2020 if you itemize. The limit had been 60% of adjusted gross income (AGI), but for 2020, cash contributions can increase this up to 100% of AGI. If you wish help with your charitable contributions, please contact The Catholic Community Foundation.
    

Finally, a word to any seniors who are still active in business: There are a number of tax benefits for businesses in the CARES Act which are beyond the scope of this article. Anyone affected should consult with his or her tax advisor as soon as possible.
    

In all cases, it is best to work with qualified professionals, who can be an invaluable resource for navigating often complex tax issues. The Catholic Community Foundation (CCF) serves as a resource to connect individuals with members of our Professional Advisors Council. Please contact executive director Cory J. Howat at [email protected] for more information. 
    

Jim Ryder, CPA, has more than five decades of expertise in complex taxation and estate planning issues. An alumnus of Jesuit High School and Loyola University, he serves as chairman of the CCF’s Donor Relations Committee and as a member of its Professional Advisors Council.