How Does the CARES Act Impact Retirement Planning?

The CARES Act has three provisions related to charitable giving. First, the act created an above-the-line $300 deduction for charitable contributions. This allows clients who can't itemize deductions to receive at least a small deduction for a donation. The act also increased the deductible limit for cash gifts to a public charity from 60 percent of adjusted gross income to 100 percent of AGI. For clients who can itemize and/or who have a large taxable windfall in 2020, this can be a useful planning tool.

The third provision relates back to the RMD waiver. Qualified charitable deductions (QCDs) were not eliminated along with the RMD waiver. This means that those who are at least 70½ can still take a distribution from their IRA and direct those funds to a qualified charity. While there is no charitable deduction available, the amount of the QCD is excluded from the client's taxable income up to $100,000. Also of note here, even though the age to commence RMDs was raised to 72 for those who had not yet turned 70½ by January 1, 2020, the age to commence QCDs was left at 70½. 

While the QCD will potentially reduce the amount in the IRA during a period when the account has experienced losses due to the decline in the stock market, for those who don't need their RMDs each year, this can be a way to potentially reduce future RMDs and save a bit on their taxes in future years. 

Social Security  

The CARES Act has a provision that allows employers, including the self-employed, to defer the payment of the employer portion of social security taxes due between March 27, 2020 and the end of 2020. One-half of the deferred payments would need to be made by the end of 2021, with the other half by the end of 2022. This may impact some of your clients, especially those who are self-employed.

While not part of the CARES Act, clients who are at least age 62 and who may have lost their job or who have experienced other financial hardships might look at claiming Social Security benefits earlier than planned. This may or may not ultimately be the course of action that is best for them, but it is an option to be discussed, along with a look at the pros and cons for your client.