The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law March 27, 2020. Relief in the legislation was focused on both small businesses and the workforce at large.
While many are still dealing with changes to their financial state and hoping for a quick rebound as the economy gradually reopens, it’s prudent to consider that these financial challenges may remain for the balance of 2020 and, for some who are directly impacted, for years to come.
There are a lot of details contained within the CARES Act and, because it’s so new, aspects that are summarized here may need future clarification or further scrutiny. For now, highlights that are most relative to individual financial planning include:
Unemployment Insurance Provisions
- This provision includes Pandemic Unemployment Assistance available through December 31, 2020 to benefit those usually ineligible for traditional unemployment, including self-employed, independent contractors and limited work history workers.
- Unemployment benefits are increased by $600 per week per recipient for up to 4 months.
- Benefits are also extended an additional 13 weeks past the time at which state benefits availability ends.
Rebates/Stimulus Check Payment
- The federal government issued checks that equal $1200 per adult + $500 per child.
- There is an income phase-out. The funds include a reduction equal to 5% of income exceeding $75,000 for a single tax filer and $150,000 for those who file married jointly.
- Income is calculated based on 2019 tax filings; 2018 returns were used for those who had not yet filed.
Retirement Funds Access
- This provision waives the 10% early withdrawal penalty for qualified coronavirus-related plan distributions up to $100,000 after January 1, 2020.
- The waiver applies to an individual who is diagnosed with COVID-19, or a spouse who is diagnosed, or anyone adversely impacted financially by being quarantined, furloughed or laid off, had work hours reduced, or was unable to find childcare, etc.
- The applicable taxes can be spread over three years or permits recontribution within three years (works like a 3-year indirect transfer; the 60-day limit is waived on these).
- This provision also raises limits on employer plan loans.
Required Minimum Distributions (RMDs)
- RMDs for defined contribution plans, 403(b) plans, 457(b) government plans and IRAs may be waived for the 2020 calendar year. It also includes inherited IRA RMDs.
- Repayment is permitted for those who already took 2020 RMDs this year. Payments for 2020 can be “rolled over” to another IRA within 60 days, or by July 15, 2020 for any distributions between February 1 and May 15 of this year, subject to one rollover per 12-month period.
Charitable Contribution Deductions
- The CARES Act allows for above-the-line charitable deductions of $300 without requiring itemization.
- Itemized charitable deductions are unlimited this year (normally 50% of Adjusted Gross Income)
- The income limit on deductions has been lifted for 2020.
Student Loan Provisions
- Students can enjoy a hiatus from payments and interest for 6 months through September 30, 2020 with no penalties for federally backed loans.
- HSAs can be used for telehealth services.
- HSA and FSA reimbursements are allowed for over-the-counter medical products.
Many of these changes are temporary, limited to the 2020 calendar year — or shorter where noted, and other benefits are available for certain circumstances. There is something for almost everyone somewhere in this legislation, so take note. Features you might not intend to leverage now may become useful later in the year.
The CUNA Mutual Group Advanced Planning team is ready to support you with answers to your legislative change questions. Don’t hesitate to reach out with questions. And check out our guide below to help your clients who feel uneasy about recent market volatility and the economic impact of the coronavirus pandemic.
Written by: Marshall Heitzman, CFP®, ChFC, FLMI, CPCU, BFA™
Marshall is CUNA Mutual Group's Advanced Planning Expert and has more than 25 years experience in the insurance and financial services industry. He consults Financial Advisors on advanced retirement planning concepts for retirement and wealth management clients.