Normally, more than 20 percent of Americans would rather go to the dentist or the DMV than talk about their finances1. But in light of recent events, we may all be asking: What’s normal? What’s next? Those of us not typically drawn to our finances may now be laser focused on portfolios with an uneasy eye and a pit in the stomach. And watching this all unfold from the isolated confines of our home offices and living rooms only increases our anxiety.
While stress levels may be off the charts, a care package has arrived with options and opportunities to help Americans push through this pandemic. The CARES Act (Coronavirus Aid, Relief, and Economic Security Act) has been enacted into law and takes aim at providing relief to individuals and businesses that have been impacted as a result of COVID-19. On a macro level, highlights include:
- $1200 direct payments to individuals with income caps;
- $500 billion fund to aid key industries impacted by the virus (airlines, hotels, etc.);
- $350 billion in small business loans;
- A rescue fund for state and local governments;
- Immediate cash for hospitals; and
- A dramatic expansion of unemployment benefits.
This $2 Trillion emergency bill is unprecedented in size and scope and covers a spectrum of American needs — from college loans to retirement plans. Through the CARES Act, the government will be busy cutting checks, extending tax deadlines, increasing access to funds, adding flexibility to distributions, creating additional incentive for charitable contributions and increasing unemployment benefits. Here’s a snapshot of seven provisions that may help lower your blood pressure by enabling you to get beyond some of the financial stress of this pandemic.
- You may be receiving a check from the government to cover your income gap: The CARES Act provides for Economic Impact Payments to American households of up to $1,200 per adult for individuals whose income was less than $99,000 ( or $198,000 for joint filers) and $500 per child under 17 years old – or up to $3,400 for a family of four. For more information on Economic Impact Payments, go to www.irs.gov/coronavirus/non-filers-enter-payment-info-here.
- You may be able to more easily borrow from your 401(k) or other employer retirement plan: Your employer may choose to increase the amount you can borrow from your plan to a maximum of $100,000 and up to 100 percent of the vested account balance (vs. the prior $50,000 & 50-percent limitations). The due date for loan repayments on certain plan loans, has been extended up to one year.
- You can get a break from the IRS: The IRS has moved the 2020 tax filing date to July 15, 2020. Under IRS Notice 2020-18, a valid tax extension will not extend beyond Oct. 15, 2020. For more information on IRS deadlines, go to https://www.irs.gov/newsroom/filing-and-payment-deadlines-questions-and-answers.
- You get more flexibility in how you are currently taking required distributions: The CARES Act temporarily waives the minimum distribution requirements for most defined contribution plans (e.g., 401(k)) plans that are maintained by an eligible employer and IRAs. This applies for all required minimum distributions that otherwise would have been required to be made in 2020.
- You get distribution exceptions/advantages if you or a family member have been affected by COVID-19: The Act creates an exception under IRC 72(t) to temporarily allow up to $100,000 to be received from a qualified plan or IRA without a 10-percent excise tax for individuals affected by COVID-19 (unemployed, missed work, wages). The exception permits recontribution of the distribution to the plan or IRA within three years (without interest) on a pre-tax basis. The taxpayer or family member does not have to be diagnosed to take advantage of this provision.
- You get increased unemployment benefits if you have lost your job because of COVID-19: The CARES Act will fill the gap between a paycheck and state unemployment benefits with an extra $600 per week in unemployment benefits in addition to what participants are already eligible for. The bill also provides an additional 13 weeks of continued $600 weekly payments for individuals who remain unemployed after exhausting their state unemployment benefits, based on certain qualifications.
- You get more tax incentives for your charitable contributions: Individuals who take the standard deduction may now claim up to $300 ($600 if married) of qualified charitable contributions. Donations to a donor advised fund do not qualify for this above the line deduction.
"This $2 Trillion emergency bill is unprecedented in size and scope and covers a spectrum of American needs — from college loans to retirement plans."
Whether the CARES Act is the right remedy for your financial stress, or even helps provide an emotional rescue of sorts for your pain and suffering, it is important to educate yourself on government changes and incentives that can make a difference in your life. In this period of disruption and uncertainty, you have an opportunity to take advantage of the largest care package the government has ever provided this country. Don’t wait to unwrap it.
For more insight on the financial aspects of the CARES Act, contact your financial professional or a certified tax expert. For information on your retirement plan, contact your employer or plan administrator. For a detailed reading of the bill, go to CARES Act – Congress.gov.