Recent landmark legislation related to the pandemic might create a lot of tax changes for individual taxpayers, including relaxed rules on retirement savings and financial breaks for businesses.

For starters, the Coronavirus Aid, Relief, and Economic Security (CARES) Act provides two options to retirement savers: 401(k) distributions of up to $100,000 without the normal 10% penalty for early withdrawal or the ability to borrow the lesser of a $100,000 or the balance entire.

Coronavirus-related distributions are available from 401(k), 403(b) and governmental 457(b) plans, among others. These distributions can be included in an individual’s income tax over three years and aren’t subject to mandatory 20% withholding for eligible rollover distributions.

The relaxation of rules has been welcomes especially by wealthy clients, advisors said.

“High-net-worth clients that I’ve spoken with, business owners or not, are of the view that if someone has a Covid-19 related financial hardship, any policy that allows these persons to access their retirement plan assets and their contributions is a very good benefit,” said Tim Speiss, a CPA/PFS and co-leader of the Private Wealth Group at EisnerAmper in New York.

Some of these relief benefits come with tax implications. A loan in the above circumstance, for instance, is better than incurring tax liability on the distribution, according to Speiss.

“Many of our high-net clients have suspended their [required distributions] this year, which is allowed under CARES,” said Gail Rosen, a CPA in Martinsville, N.J. “The stock market is very volatile right now. Clients don’t want to have to liquidate their investments in a bear market.” 

CARES also provides giving incentives. Taxpayers who itemize deductions can use the new rules to temporarily increase the adjusted gross income limit on cash contributions to public charities, according Lisa Colletti, J.D./CFP, and managing director and partner at Aspiriant in New York.

Charitable donations of up to $300 can be taken as an “above the line” deduction for taxpayers who take the standard deduction, Rosen added.

“Most high-net-worth clients acknowledge that this is not a stimulus package but a relief package,” Colletti said. “The CARES Act is not about boosting the economy but rather providing economic relief to businesses who have been told to shut their doors and to the employees who lost their jobs.”

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