These are challenging times. New information is coming out on a daily basis. There is a good chance that the way you run your personal life today is not the way you were running it when the new year started. We asked our writers to create articles that help you run your personal life while maintaining your social distancing. We will be adding new articles every week.
In response to the coronavirus's debilitating impact on the U.S. economy, Congress passed the $2 trillion Coronavirus Aid, Relied, and Economic Security (CARES) Act. In addition to direct payments to taxpayers and financial aid for businesses, the CARES Act extends several benefits to retirees. Although these benefits are only temporary, they can improve retirees' financial outlook for 2020.
No Required Minimum Distributions for 2020
For many retirees who don't need the income from their 401(k) or IRA, required minimum distributions (RMDs) are a thorn in their sides. RMDs are a way for the government to finally collect taxes on retirement funds that have been allowed to grow tax-deferred. A distribution from these accounts creates a taxable event on withdrawn funds that many retirees roll right back into a taxable investment account.
The CARES Act allows retirees to skip their RMD for 2020 and save on taxes. For retirees who have already taken their RMD for 2020, they have 60 days to put their money back into their retirement account. This could be especially beneficial for retirees who have experienced losses in their retirement accounts this year.
COVID-related Withdrawals from Your Retirement Account
The CARES Act allows retirement account owners to take out up to $100,000 and then spread the taxes on the withdrawal over three years. This provision probably benefits pre-retirees younger than 59 ½ more than retirees because it also waives the 10% early withdrawal penalty. However, anyone whose finances were negatively impacted by the economic downturn could benefit from the added flexibility.
Extended Prescription Refills
For retirees who have Medicare Part D coverage, the CARES Act requires pharmacies to accept and fill 90-day prescriptions. This cuts down on the number of trips you need to make to the pharmacy, but it also allows you to stock up on drugs that could be impacted by some of the supply chain problems that have been occurring.
Broader Use of Health Savings Accounts
For retirees who have Health Savings Accounts, they may now access tax-free funds to cover a broader range of products, including over-the-counter medications and health aids. The more extensive coverage also includes telehealth and remote care services.
As always, HSA owners can access their funds for any purpose after age 65, but the withdrawals are taxed as ordinary income. But, if withdrawals are used to cover qualified medical expenses, they are not taxed.
Increased Incentives for Charitable Contributions
If you have been wanting to make a significant gift, this would be the year to do it. For retirees who will itemize their deductions on Schedule A for the 2020 tax year, the AGI limit on charitable giving has been increased from 60% to 100%. For retirees who don't itemize, the CARES Act allows for a $300 "above-the-line" deduction
While it may not be extensive, the relief provided by the CARES Act may be just the right amount at the right time for retirees who could use a financial boost. If you are going to take advantage of the CARES Act's tax-related benefits, it would be essential to review them with your tax advisor before taking action.