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Matthew Greene 

How Can I Increase My Tax Savings Later On?

August 18, 2020

For those considering their retirement plans, now is a very challenging time, as the markets have been stir-crazy, and the coronavirus has taken the world by storm. When it comes down to retirement planning, those who are charitable IRA owners might want to keep reading.

With all of the new laws and acts passed within the last couple months, it is extremely important that IRA owners know what has and has not changed regarding donations to charities and organizations using IRA assets.

What has not changed:

  • Those who own an IRA and are 70 ½ and older can still donate up to $100,000 of IRA assets to charities, but not donor-advised funds (Saunders, 2020)
  • These donations will count towards the Required Minimum Distribution
  • Donations will not raise your gross adjusted income
  • No deductions for donations

What has changed:

RMDs are not required in 2020, which means that IRA donations cannot reduce them, so if you make not one, but two donations in 2021, you can get an even bigger tax break. As a result of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, those who are eager to give more than the limit of $100,000 of their IRA assets can now give their donations in a different form. Under the CARES Act, which was enacted at the end of March of 2020, IRA owners can now withdraw cash from their IRAs. What this means is that IRA owners can now make cash contributions without percentage limitations.

While this is a rather good thing for those that are very wealthy, those who have IRAs are recommended to make their donations in the form of IRA assets first rather than cash or stocks. You may be wondering why, and it is because for those who will inherit your assets, it is better to leave them with assets in accounts that can be taxes instead of a traditional IRA due to the fact that traditional IRAs will come with taxes to be paid.

Now, there is a limited number of people that are more than willing to donate a majority of their income to charity, however, there are people that do. In an effort to increase immediate donations to flatten the curve and reduce the spread of COVID-19, the Adjusted Gross Income provision was put into place. This way, the charitable contributions will be “spent right away for charitable purposes, rather than be accumulated for charitable purposes in future years” (Kent, 2020). As another result of the CARES Act, donors can get a Federal income tax deduction for charitable contributions of up to 100% of their Adjusted Gross Income (Kent, 2020).

To learn more about how you can increase your tax strategy later on, give us a call at (985) 237-4033. We would be happy to go over how the CARES Act affects your retirement plan and how you can maximize your financial future.

The content provided herein is based on our interpretation of the CARES Act and is not intended to be legal advice or provide a tax opinion. This information is a summary only and not meant to represent all provisions within the CARES Act.

Sources:

Kent, Bernie. “Giving More Than 60% Of Income To Charity? CARES Act Says Deduct It!” Forbes, Forbes Magazine, 14 Apr. 2020, www.forbes.com/sites/berniekent/2020/04/03/giving-more-than-60-of-income-to-charity-cares-act-says-deduct-it/#5c14ad36b34f.

Saunders, Laura. “A New IRA Donation Strategy Now Can Increase Your Tax Savings Later.” The Wall Street Journal, Dow Jones & Company, 17 Apr. 2020, www.wsj.com/articles/a-new-ira-donation-strategy-now-can-increase-your-tax-savings-later-11587115805.