CARES Act

Legislative Response: The CARES Act

The medical response to COVID-19 is underway. Social distancing is the order of the day. Congress and the Fed have weighed in. Now, your professionals get to work. Among those professionals, the accountants, financial advisors, and attorneys are leaping into action to help small businesses and families.  I have received e-mails and outreach from the best pros I know in different fields offering guidance, support, and insight. That coordination will contribute to all of our success as this crisis has implications for all aspects of our financial lives.

Before diving into the financial planning implications of our situation, a caveat: If you are not working with a Certified Financial Planner™, it may be time to consider whether your advisor has the proper expertise to navigate all that could change in your financial plan. As I have written previously, many other financial advisors have specialties like investments or insurance, while others take a more comprehensive approach that also includes retirement planning, taxation, and estate law. Someone holding the Certified Financial Planner™ designation has undergone extensive training and education in each of these aspects of financial planning that other non-credentialed financial advisors have not completed. Additionally, CFP®s must undergo a certain amount of continuing education to retain and sharpen their skills.  A financial advisor who has not completed this curriculum or maintained such a skill set may not be as knowledgeable in these fields. You need someone with the right base of knowledge who will place your interests first, and proactively coordinates with your other professional advisors and counsel. To determine if your advisor is best-equipped to help you at a time like this, ask him or her these questions.

Now, some details on the recent policy actions…

In the last several weeks, the extraordinary social developments regarding the COVID-19 virus have prompted an unprecedented response from the Federal Reserve and now Congress with the passing of the CARES Act, which was signed into law on Friday, March 27th. This $2 trillion stimulus is designed to bridge employers and individuals from now to an uncertain date in the future when economic activity gets back to some state of normal. It includes a combination of direct payments to individual Americans, strengthened unemployment insurance, loans to businesses, and increased healthcare resources. 

The financial conditions that existed at the end of 2019 are now very different. Firstly, the SECURE Act eased certain ways in which savers and retirees can build a retirement nest egg. Now, the recent policy moves have made it easier (hopefully) to weather the current storm.

Times like this are when advisors earn our keep. Everyone who owns an IRA, has an estate plan, or pays taxes will be affected, but the impact will be very different from one neighbor to the next and one co-worker to the next. Below are some financial planning considerations regarding the recent policy changes for individuals and families. Each provision has its own nuances. Business owners will have opportunities in addition to the ones noted below. 

The CARES Act:  

  • Individuals will receive one-time payments of $1,200, couples will receive $2,400, with an additional $500 for each child under the age of 17 (limitations apply under the CARES Act). These payments will begin to phase out above $75,000 in Adjusted Gross Income for individuals and $150,000 for couples.
  • Required Minimum Distributions from qualified accounts are suspended for 2020 under the CARES Act. If an RMD has already been taken, you have the option to return the distribution.  
  • 10% penalty on early withdrawals from qualified retirement accounts is waived for distributions up to $100,000 after January 1, 2020. Taxes attributed to these distributions can be spread over three years and individuals can recontribute the funds over a three-year period without regard to contribution limits.
  • New $300 above-the-line deduction for qualified charitable contributions.
  • AGI limit for cash charitable contributions has been temporarily repealed.
  • Qualified plan loan limits are now raised from $50,000 to the lesser of $100,000 or 100% of the account balance. The rule applies to any loans taken within 180 days of the enactment of the bill.

Tax Policy Changes:

  • July 15th is the new deadline for filing 2019 taxes and making tax payments.
  • IRA and Roth IRA contributions can be made up until the extended filing date.
  • October 15th is still the filing date for any returns with an automatic six-month extension.

Monetary Policy Changes

  • The Federal Reserve has lowered interest rates to zero, lowering expected returns for safe assets like cash, CDs, and bonds.
  • Significant Quantitative Easing (the Fed buying securities directly) is being used to keep the bond market functioning properly. The Fed has expanded this practice beyond its playbook from the Financial Crisis to include corporate bonds, municipal bonds, and even exchange traded funds (ETFs).  

The SECURE Act

  • Extended initial Required Minimum Distribution to age 72 from age 70 1/2.
  • Repealed the maximum age for retirement plan contributions.
  • Elimination of the stretch IRA as an option for non-spouse beneficiaries.
  • Allowed to use funds from 529 plans to pay for some student loans (up to $10,000).

There is so much you could do in 2020 to secure your family’s financial future, the question is, “What should I do?” Here is how you should approach financial planning in 2020:

  • Assess where you are. How have you been, or could you be impacted by economic changes?
  • Set priorities. You can’t accomplish everything at once, and the right answer may be to do nothing at all.
  • Manage expectations. This could last for longer than we think, or not. We just don’t know. Err on the side of long-term financial stability and recognize that in hindsight there may be some opportunities missed, but you gained peace of mind. 

Our team of Certified Financial Planners™ want to help you learn, adapt, and take the right actions for your family. We are monitoring your investments through the market volatility, but the economic disruption of COVID-19 will impact each family’s plan in a unique way. If you have questions or want to better understand how these changes impact you, please let us know. And, as always, we welcome the opportunity to speak with those whom you know who may not have a financial plan and would benefit from our guidance. Wishing you continued health and safety in the weeks to come.