In the past nine months, Congress passed two pieces of legislation containing important changes for retirement planning and charitable giving. Below are key highlights that may impact tax and estate planning for your donors:
Coronavirus Aid, Relief, and Economic Security (CARES) Act - Passed March 2020
- No RMD for 2020: Individuals are not required to take a required minimum distribution (RMD) from their retirement accounts for the 2020 tax year.
- Donors who itemize are eligible to receive a federal income tax deduction for cash charitable contributions up to 100% of their Adjusted Gross Income (AGI). (Previously this was limited to 60% of AGI.) For gifts of appreciated securities, the AGI limitation remains at 30%.
- Donors who do not itemize may make up to $300 of cash contributions to qualified, public charities with an “above-the-line” deduction. And, unlike most other provisions of the CARES Act, this provision is not limited to just 2020; it will apply to all tax years going forward.
Setting Every Community Up for Retirement Enhancement (SECURE) Act - Passed December 2019
- Increased the age at which individuals must start taking RMDs from retirement accounts from age 70½ to 72. (If an accountholder had already turned 70½ in 2019, however, they must continue to take RMDs as usual (with an exception for 2020, as created by the CARES Act).
- Donors who are 70½ or older in 2020 may still use qualified retirement plans to make charitable gifts through a qualified charitable distribution (QCD), even if they are not yet required to take an RMD. Even without the RMD incentive, QCDs are a tax-smart way to make gifts to charity whether you still itemize or not, as the gifted amount will be removed from your taxable income for the year.
- Donors who are still earning income can continue making contributions to their IRAs, regardless of age. (Prior to passage of the SECURE Act, the age cutoff for contributions was 70½.) However, if an individual is making contributions to an IRA and using that IRA to make QCDs, the amount put into the IRA is excluded from the QCD that can be used for the special RMD offset treatment (don't worry about this for 2020).
- The “stretch IRA” has been eliminated for non-spouses, which means that many IRA beneficiaries are required to take the full account payout within 10 years of the death of the original account holder. (Previously, distributions from the IRA could be taken over a beneficiary's lifetime, allowing a longer time frame over which to pay applicable income tax.) This is a significant change that may lead many donors to revisit their estate plans and may provide an even bigger tax incentive to use retirement accounts for gifts to charity and leave assets with a lower tax burden to loved ones.
Questions? Contact David Toll, JD, senior associate vice president, in Drexel University’s Office of Gift Planning at (215) 895-1882 or giftplanning@drexel.edu.